Turkey’s national currency has plunged 45% against the dollar this year, and yet President Recep Tayyip Erdogan doesn’t seem so upset.
The lira has hit record highs in recent days, but Turkey’s leader continues its “war for economic independence” backed by low interest rates.
Why is Erdogan pushing a model that critics say risks skyrocketing inflation, unemployment and poverty, and what does this mean for Turks?
The simple reason for the collapse of the Turkish lira is Erdogan’s unorthodox economic policy keep interest rates low to boost Turkey’s economic growth and export potential with a competitive currency.
For many economists, if inflation rises, it is controlled by rising interest rates. But Erdogan sees interest rates as “an evil that makes the rich richer and the poor poorer”.
“Everything is very expensive,” Sevim Yildirim told the BBC at a local fruit market. “It’s impossible to even cook a main course for a family at these prices.”
Annual inflation has exceeded 21% in Turkey, but the Central Bank of the Republic of Turkey, reformed by Erdogan, has just cut interest rates from 16% to 15%, the third cut this year.
Inflation is rising all over the world and central banks are talking about raising interest rates.
But not in Turkey, because Erdogan believes that inflation will eventually come down.
In the past two years he has sacked three central bank presidents and a few days ago he replaced his finance minister. And the lira continues to fall.
The Turkish economy relies heavily on imports to produce goods ranging from food to textiles. rising dollar against the lira has a direct impact on the price of consumer products.
For example the tomato, an essential ingredient in Turkish cuisine. To grow tomatoes, growers must buy imported fertilizer and gas.
Tomato prices rose 75% in August from a year earlier, according to the Chamber of Commerce in the agricultural center of Antalya on the south coast.
“How can we make money from this?” asks Sadiye Kaleci, who grows vines in Pamukova, a small town three hours’ drive from Istanbul.
“We sell at low prices, but the purchase costs are expensive,” he laments, citing the high costs of diesel, fertilizers and sulfur, which is thrown on the vines.
Another farmer, Feride Tufan, complains that the only way to survive sells its assets: “We can repay our debt by selling our land and our vines. But when we have sold everything, we will have nothing.”
The currency has become so volatile that prices change daily. Inflation for producers alone has increased by 50%.
“I reduced all my expenses,” says Hakan Ayran, a market buyer. “To pay the bills, everyone eats less and no one buys.”
Supermarket workers post price increases on social media, posting before and after labels on products.
Foreign currency debt is a problem for the private sector and most companies have found that it is more profitable to store products rather than sell them, due to the volatility and inflation of the lira.
Everything adds up to a increase in poverty and widening of the gap on equality of income and wealth.
The anger of the young
There are queues outside petrol stations and outside local government offices offering cheap bread.
And opposition parties are calling for early elections and rallies.
When the lira plunged 18% in one day on November 23there were small demonstrations and dozens of arrests.
But the most visible display of public dissent is among young Turks on Twitter, in Twitch live streams, TikTok videos and YouTube.
“I’m not at all happy with this government. I don’t see myself having a future in this country,” a young man told a journalist on a YouTube channel.
One in five young people in Turkey is unemployed; it is even worse in women.
Turkey has the fourth highest jobless youth rate in the worldneither education nor training, according to the OECD.
Young people in Turkey compare their standard of living with those of other countries and they don’t like what they see.
“For a young person in the United States or Europe, it’s easy to buy an iPhone with his salary,” explains an 18-year-old. “Even if I work for months and months, I can’t afford it. I don’t deserve it.”
This generation is set to play a major role in politics in Turkey, which has been led by Erdogan’s Justice and Development Party (AKP) since 2002.
Nearly nine million Turks born since the late 1990s will be able to vote in the next elections in 2023 and it could mean problems for the AKP.
A video that went viral showed a mother praising President Erdogan to a journalist, while her eight-year-old son contradicted her, pointing to her mishandling of recent disasters.
The success of the ruling party is due in part to an influx of foreign funds following the 2008 financial crisis.
But much of Turkey’s economic growth has come from government spending and loans that have boosted the construction industry.
As a result, production remains dependent on imports and the economy is at the mercy of currency fluctuations.
Few hope that Erdogan’s new economic model will come to the rescue of the Turkish lira.
Amid so much uncertainty, economist Arda Tunca says it’s impossible to predict what will happen next.
“It’s the first time we’ve used a model that’s totally removed from economic theory. Even when there was a crisis, we could guess what would happen. Now that’s impossible,” he says.
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