Turkey is in the midst of an economic crisis. A nearly 70 percent increase in prices has made the country less efficient, and prices are rising. While for the middle class this means that their holidays abroad are no longer possible, the poorest have to do without the necessities.
What is happening in the Bosporus right now?
And how did it get to this point?
Inflation in Turkey today
Looking back shows that inflation is not a new phenomenon in Turkey; the currency has fluctuated greatly over the years. Inflation decreased in 2001 and stabilized at a very low level. Many say this is the new President Recep Tayyip Erdogan.
At first they seem like a great light of hope and they are driving the world forward and change. The economy is improving, and the middle class is growing. But Erdogan is increasingly turning from a democrat to an autocrat. Especially after the military defeat in 2016, Erdogan used more and more tactics to stay in power. Opponents and opponents are persecuted, dismissed, arrested.
Erdogan is becoming more involved in areas that were previously independent of the government – for example in the central bank of the country. It controls the country’s monetary policy and controls inflation.
And this has been growing strongly since 2021. The reasons for this include the corona epidemic, the lack of tourists, foreign investors and the rising cost of electricity. In most cases, the central bank steps in and raises interest rates – one of the most powerful inflation-fighting tools at its disposal. The higher the interest rate, the more expensive it is to borrow money. This means that less money is managed, and therefore less is spent. And lower demand directly affects prices. But any central bank governor who tries to raise interest rates will be replaced.
Erdogan’s economic philosophy
Because Erdogan has his own economic idea: According to him, it is high interest rates that lead to inflation. Low interest rates are what the world needs – even if no economist would agree with that.
Various statements by the President indicate that one of his reasons for interest rates is Islamic law. One of the most important aspects of Islamic financial law is the clear prohibition of usury.
So Erdogan relies on his methods. He started a bank account that was supposed to protect against devaluation and appealed to patriotism. Among other things, they are asking Turks to convert their gold reserves into lira to stimulate the currency.
Recep Tayyip Erdogan’s speech, written: “If we bring back the 5000 tons of gold that are under the mattress to our economy, our country and our country will be stronger.”
So far, despite this, his interest rate policy does not seem to be paying off. In May 2022, inflation will rise to about 70 percent. Independent economists estimate it to be more than 150 percent.
It has become common for Turks to have a bank account in foreign currencies such as dollars or euros in addition to a lira account. When they receive their salary, they exchange it for regular currency. The whole thing is the dissatisfaction of the central bank, because it has no control over the foreign currency and therefore even cannot control the monetary policy.
Finding a solution to inflation will not be easy. Raising interest rates would have a negative impact on long-term economic growth – and the chances that Erdogan will allow this to happen are slim to none. In fact, the following applies to any path Turkey chooses from inflation: it will be very difficult.