A group of people wave their flares during a protest organized by the DKR union on Sunday against the economic policies of the government of Turkish President Recep Tayyip Erdogan. AP Photo/Emrah Gurel
Istanbul, Dec. 13 (Dow Jones) — The two-decade economic boom that brought millions of Turks into the middle class is beginning to unravel, threatened by a currency crisis that has people lining up for bread subsidized, reduce their meat consumption and flee in search of a better life in Europe.
The Turkish lira has lost up to 45% of its value this year, impoverishing ordinary Turks. The pandemic-era consumer price increases that have affected economies around the world are huge in Turkey, where inflation exceeds 21%. People here are rushing to exchange their dwindling salaries for dollars and gold, eat less in restaurants and find it harder to find imported goods, including medicines.
The crisis is largely due to President Recep Tayyip Erdogan’s economic policies, Turkish and foreign economists have said. After nearly two decades in power, Erdogan has sacked nearly every economic leader who opposed his unorthodox views and steered the country down a path that few, if any, economies the size of Turkey have failed. have drawn.
After years of weakening Turkish institutions and centralizing power, Erdogan has now assumed broad control over the economy, with no one in government to oppose him, former Turkish officials said.
Erdogan successfully pressured the central bank to cut interest rates despite rapid inflation. Typically, central banks raise rates to encourage saving, discourage borrowing, and curb inflation. But Erdogan called for lower interest rates and blamed the rising costs on foreign interests.
Turkey, a G-20 economy and a leader among emerging markets, is a North Atlantic Treaty Organization ally and a key security partner for the United States. Moreover, its financial instability could affect the Middle East. It could also threaten Ankara’s ambitions to become a power broker in the region, where it has acted as a counterbalance against Russia, while intervening in conflicts in Libya, Syria and Iraq.
The plummeting pound has also fueled fears the crisis could escalate into broader financial instability, with economists warning of the risk of a bank run or credit crunch. This is the most serious test Turkish financial institutions have faced in decades, according to bankers and former Turkish officials.
Erdogan and other Turkish officials have insisted that the fluctuations in the pound are temporary and part of a longer-term strategy to boost exports and transform Turkey’s economy into one focused on the productive industry. Erdogan also blamed the crisis on unspecified foreign interference and officials from the president’s party have also called on Turks to eat less, sacrificing themselves for the good of the country.
“What you call exchange rates go up today and go down tomorrow,” Erdogan said on Dec. 1. “What you call inflation rises today and falls tomorrow. Production and employment are permanent.
The president’s office did not respond to a request for comment.
The country has suffered from debt and currency calamities in recent years, but the current crisis differs from previous ones as no one remains in government to oppose Erdogan’s unorthodox policies, including cutting interest rates despite the strong inflation.
Former finance minister Lutfi Elvan, seen by officials and analysts as the last voice of mainstream economics in the cabinet, recently resigned and was replaced by an Erdogan loyalist.
“He doesn’t understand economics and the people around him don’t understand economics,” said former prime minister Ahmet Davutoglu, a longtime Erdogan ally. “He’s on another planet, another universe.”
The devaluation of the pound is fueling discontent among working and middle class Turks who form the backbone of support for Erdogan and his Justice and Development Party (AKP). After years of surviving a military coup and leading Turkey through wars and instability in the wider Middle East, Erdogan is now at risk of revolt within his political base.
The currency’s collapse sparked protests in Turkey’s main cities in late November, with crowds of protesters shouting for Erdogan to step down. Riot police lined the streets of Istanbul. Two opposition figures, including Davutoglu, accused the Turkish president of treason. Police have arrested more than 60 people during protests in various neighborhoods in this city, according to a local bar association.
“We used to cook meat every day. Now it’s only once a week,” said Maryam Atalay, a 58-year-old worker at a food counter in Kasimpasha, the Istanbul neighborhood where Erdogan grew up. someone else.”
Early in his political career, Erdogan helped make Turkey’s economy one of the fastest growing in the world and dramatically expanded the country’s middle class. As mayor of Istanbul in the 1990s, he brought running water and garbage collection to the city’s slums, helping to restore the city’s status as a world center for tourism and commerce.
After becoming prime minister in 2003, Erdogan and a succession of AKP-led governments revived Turkey’s economy with investments in roads, airports and other infrastructure. Ankara accepted billions of dollars in loans from the International Monetary Fund and modernized its economy, fueling a boom that made Turkey the world’s 16th largest economy in 2014.
Within a decade, Turkey has become a middle-class country. More Turks bought cars and houses and vacationed in Paris and Rome. Tourism has quadrupled. In 2013, the Turkish economy was more than four times larger than in 2002.
Erdogan has expressed his desire for low interest rates since becoming prime minister in 2003, driven in part by his desire to boost the economy and in part by his religious beliefs. A devout Muslim and advocate for a greater role for religion in society, he cited an Islamic ban on usury in arguing for lower rates.
For most of Erdogan’s time in power, his cabinet, advisers and Turkish bureaucracy kept his wishes in check. For more than a decade, he was surrounded by technocrats and others in his own party who understood that central banks raised rates to curb inflation and lowered them when inflation was under control.
“It was quite easy,” recalls Sureyya Serdengecti, governor of the central bank from 2001 to 2006. “He was asking for lower interest rates. I wouldn’t say anything and we wouldn’t cut the interest rate.”
Over the years, his circle of advisors narrowed. The AKP leaders walked out after clashing with him over the economy and the government’s increasingly authoritarian turn.