![]() ![]() Last week, police broke up small demonstrations that erupted in Istanbul and several other Turkish cities by groups protesting the high cost of living. Recently, soaring consumer prices have hurt his popularity, with opinion polls pointing at unease over his economic policies even among supporters. His early years in power were marked by a strong economy that helped him win several elections. Turkey is focused on growing the economy rather than controlling inflation, Demiralp said, “but I think even growth is highly questionable at this point because you are going to see more contraction coming as a result of the panic and uncertainty and escalating costs coming from this crisis.” What's the political impact for Erdogan? The markets are not buying this story," she said. "The central bank claims that by cutting interest rates, they’re going to contain inflationary pressures. The Turkish leader has blamed the currency crash on foreign forces bent on destroying Turkey’s economy and says his government is waging "an economic war of independence".ĭemiralp, the economist, says the government is doing the opposite of what is normally done to tamp down prices. In a further shake-up, Erdogan on Thursday appointed a new finance minister considered to be supportive of the push for low borrowing rates, leading to a slight decline of the lira. He has vowed to break the cycle of an economy dependent on short-term “hot money” lured by high-interest rates.Įconomists say raising borrowing costs eases inflation, which has been surging worldwide as the economy recovers from the coronavirus pandemic but is especially acute in Turkey because of the government's unorthodox policies.Ī devout Muslim, whose religion regards usury as a sin, Erdogan has described interest rates as “the mother and father of all evil.” He has fired three central bank governors who resisted lowering rates. The Turkish president has been pushing for low borrowing costs to stimulate the economy, boost growth and exports, and create jobs. “And that’s that’s a major threat for the future of the country". Earlier this month, treasury and finance minister Nureddin Nebati suggested that the government would introduce inflation-linked bonds for individual investors and predicted “a significant decrease in inflation in the coming period with the normalization of commodity prices, the stability in the exchange rate and the additional steps we will take."When your salary gap between what you can earn in Turkey versus what you can earn abroad widens so much, it’s just going to be very difficult for us to keep those highly educated white-collar people at home," she said. “The amount of external debt to be paid over the next 12 months exceeds $175 billion.”Īt the end of April, Erdogan told reporters that inflation would begin to fall after May. “Despite high inflation, the Erdogan administration’s strategy continues to widen the current account deficit, which is likely to hit $30 billion next month,” says Sonmez. However, Mustafa Sonmez, a Turkish economist, and Atilla Yesilada, Turkey country analyst at GlobalSource Partners, point out that the currency’s share of Turkish foreign trade is miniscule compared with the 71% that is denominated in dollars and 21% in euros. Turkey’s trade ministry has been keen to paint a positive picture, noting that use of the lira in foreign trade rose by 72% in the first three months of 2022. After a period of relative stability during March and April this year, the lira’s downward trajectory once again picked up pace in May.
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