Turkey is plunging into the economic abyss and seems to be doing so completely voluntarily. After President Recep Tayyip Erdogan again refused to raise interest rates on Monday, the Turkish lira fell by 10 percent against the dollar. “It’s like driving to the top of a hill and Erdogan cut the cable leading to the brakes,” said Blu Ash, an analyst at BluBay Asset Management.
The authoritarian Turkish president considers monetary policy to be an instrument that should be subject to his office. In the past, therefore, he has removed three central bank heads. The last of them was Semih Türmen, who was removed by the president in October. Türmen has now spoken out on Twitter for an immediate return to a policy that will protect the value of the Turkish currency. “An irrational experiment that has no chance of success must end immediately,” he wrote.
On Monday, Erdogan defended his actions: “I reject policies that weaken the country and condemn the people to unemployment, hunger and poverty,” he said, adding that his government would win the economic war for independence.
Dominik Rusinko, ČSOB’s macroeconomic analyst, sees Erdogan’s influence on central bank policy behind the current currency crisis: “The main reason is the extremely relaxed monetary policy of Turkey’s central bank, which continues to cut rates. The result is significantly negative real interest rates, leading foreign investors to abandon Turkish assets. “
Tomáš Laně, the former ambassador to the country, agrees that Turkey is suffering from the withdrawal of foreign investment: He concentrated power in his hands and all democratic counterbalances were completely abolished. The boom that the Turkish economy experienced in the zero years of the 21st century was due to foreign investment. Now it’s reversed, “he explains.
Sugar and oil sales quotas
The speed with which the Turks lose their savings was watched by the author of this text with his own eyes. When he arrived in the country two weeks ago, the exchange offices gave about 11 Turkish lira to the euro. Just a week later it was almost twelve and today you get almost 14 lira for the euro.
RT Erdoğan claims to be waging an “economic war for independence”. “I reject policies that weaken the country and condemn the people to unemployment, hunger and poverty,” he said yesterday, again defending interest rates for high inflation. Tax for this procedure? TRY is the fastest devaluing currency in the world. pic.twitter.com/U9fqYsBEkB
– Vaclav Cernohorsky (@Vcernohorsky) November 23, 2021
Last week, Turkish traders began restricting sales of some staple foods and setting quotas for them. For example, according to Sözcü, the sale of cooking oil was limited to one bottle per person. Sales of sugar, which has jumped 25 percent in supermarkets in recent days, have also been curtailed.
Looking at the ever-changing price tags in stores, people started stockpiling not only sugar and oil but also flour. Some Turkish suppliers have already begun rejecting lira because the currency is losing value faster than it is enough to sell goods.
The Turkish social network hashtag #Ekmek4 flooded on Monday. Ekmek means bread in Turkish and four means four lira. Until now, bread has been sold for 1.5 to 2.5 lire, depending on the region.
“Bakeries can no longer sell bread at the same prices as before, because 50 kilos of flour was 200 lire a week ago, but now 380,” Al-Monitor quoted Cihan Kolivar, head of the Turkish Bread Makers Association, as saying. According to him, the increase in flour prices has reduced bakery profits and most of them will have to increase prices in order to survive.
But the head of the Turkish Bakery Federation Halil Ibrahim Balci refused, saying that while energy prices change every day, this does not mean that citizens will be left without bread.
Most ministers would commit suicide
The defense of the economic policy of the ruling Justice and Development Party (AKP) from the vice-president of its parliamentary group, Cahit Özkan, provoked ridicule. He likened Turkey to Japan when the opposition asked if the Japanese also valued their economy at the value of the US dollar. The opposition is using the lira to call early elections, he said.
Opposition Republican MP Ali Mahir Başarır did not take napkins in response: “Japanese Agriculture Minister Toshikaku Macuoka has committed suicide over allegations of corruption. A member of the Japanese prime minister’s official team also committed suicide because he covered up corruption around the prime minister. I’m not saying you should kill yourself, but if you take Japan as an example, most of your ministers would have to commit suicide, “he told Duvar.
According to analyst Rusinka, an acceleration of inflationary pressures on the lira can be expected in the coming months as well. According to him, the logical step would be to return to a restrictive monetary policy, but this would require an independent central bank. “Given the upcoming presidential election in 2023, such a dramatic turnaround does not seem likely at the moment,” he said.
However, the election may come earlier, the opposition has so far unsuccessfully demanded it for next year. But President Erdogan himself would have to list them at a time when he was about to be defeated: “All polls show that not only his party is weakening, but he himself. Erdogan has always stood as the most popular personality, but now he is starting to lose, ”says former Czech ambassador Tomáš Laně.