Erdogan’s policies heighten Turkey’s economic crisis

25th October 2021

4 minutes read

Turkey‘s currency continues to depreciate against the dollar after the central bank of Turkey lowered its main interest rate, and the lira retreated earlier than yesterday to new historical values against the US currency.

In recent negotiations, the Turkish currency hit a low of 9.62 lire to the dollar, according to Turkish newspaper ‘’Zaman’’.

Turkish lira continues to slide after interest rate cut

Turkey’s currency fell after Turkey’s central bank lowered its main policy rate from 18% to 16% annually, a decline that is a key demand of President Recep Tayyip Erdogan.

President Recep Tayyip Erdogan has asked the central bank to facilitate monetary policy, and analysts believe that his intervention has eroded monetary policy’s credibility in recent years.

In a similar context, the British Financial Times ran an analysis called « The central bank belongs to Erdogan, not to Turkey ».

This analysis is consistent with the central bank’s need to reduce the interest rate from 200 basis points to 16%.

The pioneering newspaper of finance and economics, in particular, argued that Erdogan had different economic theories from the modern world, which led him to believe that high interest rates lead to higher inflation, which is fundamentally incompatible with the rest of the modern world.

The newspaper added that Erdogan had called high interest rates « mother of evil », had removed many central bank governors in recent years, and had recently removed three other members of the central bank’s Monetary Policy Board.

The newspaper continues: « That is why it is now called Erdogan Central Bank rather than Turkish Bank ».

The newspaper reported that Erdogan’s economic policies had driven foreign investors out of the country in large part.

At the end of the article, the daily newspaper confirmed that the cost of the ordinary basic needs of the Turkish people would increase considerably, that the cost of all types of imports, including energy, would increase and that ordinary Turkish citizens would suffer serious life problems, which is very regrettable.

The lira has lost 20% of its value this year, half of which since the beginning of last month when the central bank began offering facilitation advice despite inflation then reaching 20%.

On the Turkish currency’s prospects with Erdogan‘s policy, the Italian bank Unicredit said it expected the dollar’s exchange rate to fall to 10.50 Turkish lira and that it expected the interest rate to fall to 14% by the end of 2021.

The Bank confirmed that official institutions could once again implement the police measures put in place after the August 2018 exchange rate shock to prevent the devaluation of the Turkish lira.

Referring to a possible increase in the dollar in Turkey, Unicredit expects the dollar to reach 10.50 Turkish lira by the end of 2021 and 11.8 Turkish lira by the end of 2022.

The Turkish lira crisis has crossed borders to affect the living conditions of thousands of Syrians in opposition-controlled areas in northwestern Syria, as the Turkish lira has become the main currency in trade with the US dollar, with very limited use of the Syrian lira.

About a year and a half ago, the Syrian opposition officially announced the replacement of the Syrian lira by the Turkish lira, following the loss of value of the Syrian currency against the United States dollar and successive losses it suffered.

The decline in the Turkish lira eventually led to higher commodity prices, while fuel companies increased the prices of fuel, diesel, and household gas, increasing civilian suffering and increasing the burden and problems, especially for low-income, daily-wage workers, as Al Jazeera’s network reports.

In recent days, the city of Idleb, the largest and most populous of the Syrian opposition areas, has seen protests, in response to rising prices and the government’s rising value of bread and fuel from the bailout. Protesters demanded intervention to control market prices, especially food and cooking gas for civilians.

Public angst and anger has increased after prices reached unprecedented levels, with a domestic gas cylinder of 109 Turkish lira and bread price of 2.5 lira, while workers in Idleb and its suburbs earn only 20 Turkish lira a day.

The Minister of Economy and Resources of the bailed-out government of Idleb Bassel Abdel Aziz reports a sharp rise in the prices of goods and fuel on the Turkish lira’s decline: « More than 22% of its value has been lost since the beginning of the year, the dollar was around 7.5 Turkish lira, whereas today it is around 9.20 lira ».

Turkish lira increased to a record low versus the dollar

According to the Minister, the depreciation of the Turkish lira against the United States dollar in recent months has accelerated the price increase for most goods, especially after the adoption in northern Syria of a replacement currency for the Syrian lira, which has lost its purchase value and suffered successive losses.

As a result of the worsening economic situation in Turkey, 9,867 companies reported their fall in Turkey within nine months, according to data from the Turkish Union of Chambers and Commodity Exchanges.

Data from the Turkish Chamber and Merchandise Union (TOBB) revealed the closure of 1,687 businesses last month and 9,867 businesses between January and September 2021.

Among the companies and cooperatives that were closed last September, 514 were wholesale and retail traders, 285 in construction and 210 in manufacturing.

Against the backdrop of the economic crisis, opposition leader Kemal Kılıcdaroglu, President of the Republican People’s Party, said: Turkish President Recep Tayyip Erdogan has used foreign plots to justify the current economic situation.

The comment follows Erdogan’s instructions to announce as soon as possible the arrival in Turkey of ambassadors from ten non-Muslim countries, in particular to call for the release of Osman Kavala, a businessman indicted for the coup attempt.

In his view, these measures were not aimed at protecting national interests, but at creating artificial causes for the economy that had destroyed it.

Between January and July, the Turkish state’s budget deficit stood at about $9.8 billion, and while the situation is now much better than it was in the mid-2020s, the result remains disastrous for the Turkish state, as ‘’Today’s Russia’’ reports.