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Thursday, March 23, 2023

Why Turkey’s Currency Crash Does Not Worry Erdogan

Turkey’s national currency has lost 45 percent of its value versus the dollar this year, but President Recep Tayyip Erdogan seemed unconcerned.

The currency has flirted with record lows this week, but Turkey’s long-serving president is forging forward with his “economic war of independence,” aided by low interest rates.

So, why is Mr Erdogan promoting a model that critics say might lead to more inflation, unemployment, and poverty, and what does this imply for Turks?

The Turkish lira’s depreciation is due to his unconventional economic strategy of keeping interest rates low in order to increase Turkey’s economic development and export potential with a competitive currency.

Many economists believe that if inflation rises, it can be controlled by rising interest rates. Interest rates, on the other hand, are seen by Mr Erdogan as “an evil that makes the affluent richer and the poor poorer.”

At a local fruit store, Sevim Yildirim told reporters, “Everything is so costly.” “At these costs, even cooking a major dinner for a family is unthinkable.”

Turkey’s annual inflation rate has risen beyond 21%, although the Central Bank of the Republic of Turkey, which was revamped by Mr Erdogan, has recently dropped interest rates from 16% to 15%, the third decrease this year.

Inflation is on the rise all around the world, and central banks are considering raising interest rates. But not in Turkey, where Mr Erdogan believes inflation will eventually decline.

He has changed his finance minister this week after sacking three central bank presidents in the last two years. As a result, the lira continues to depreciate.

Because Turkey’s economy is strongly reliant on imports for everything from food to textiles, the dollar’s increase against the lira has a direct impact on consumer prices.

Take, for example, the tomato, which is an essential component of Turkish cuisine. Producers must purchase foreign fertilizers and gas in order to cultivate tomatoes.

According to the chamber of commerce in Antalya, the south coast agricultural hotspot, tomato prices increased by 75% in August compared to the previous year.

Sadiye Kaleci, who grows grapes in Pamukova, a tiny hamlet three hours from Istanbul, wonders, “How can we earn money out of this?” “We sell cheap, but buying prices are huge,” she laments, listing pricey diesel, fertilizer, and sulphur, which is sprayed on the vines, as examples.

Feride Tufan, another farmer, argues that the only way she can make ends meet is to sell her assets: “We can repay our loan by selling our vines and land. However, once we’ve sold everything, we’ll be left with nothing.”

The value of the currency has grown so unpredictable that prices fluctuate on a daily basis. Producers alone have seen a 50 percent increase in inflation.

“I’ve reduced all of my costs,” Hakan Ayran says as he shops at a market. “In order to pay the bills, everyone eats less and no one buys anything.”

Employees at supermarkets use social media to announce price increases, including before and after labels for items.

They include everything from margarine and olive oil (seen above) to tea, coffee, detergent, and toilet paper.

A bakery in Izmir, Turkey’s third largest city, posted a sign justifying its higher prices by citing rising costs of materials such as wheat, oil, and sesame, and concluding with the statement “May God be with us.”

Because of the lira’s instability and inflation, most businesses have discovered that it is more lucrative to keep things in storage than than sell them.

All of this adds up to increased poverty and a growing income and wealth disparity.

Cedric Blackwater
Cedric Blackwater
Cedric is a journalist with over a decade of experience reporting on local US news, and touching on many global topics. He is currently the lead writer for Bulletin News.

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