Currency crisis hits hard in Turkey
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Waiting to exchange money. Photo: Ozan Kose/AFP via Getty
ANKARA, Turkey — Turkey's deepening currency crisis could mark the definitive end of the country's economic success story and is making ordinary citizens poorer.
Driving the news: Turkey's currency is fluctuating on a daily basis and has lost 45% of its value against the dollar this year. Investors are abandoning Turkish assets due to concerns about the Central Bank’s ability to control inflation. Ordinary citizens are rushing to convert their savings to foreign currencies and gold.
- Street vendors have begun selling half bagels due to the decreasing purchasing power of citizens.
State of play: The economic crisis has damaged the political standing of President Recep Tayyip Erdoğan and the ruling Justice and Development Party, which has held power since 2002 and based its pitch to voters largely around rising living standards.
- Erdoğan's economic team insists on an unorthodox economic policy of cutting interest rates despite soaring inflation and rising poverty. Erdoğan has described high interest rates as the “mother of all evil."
- Erdoğan and his team claim their policy will boost Turkey's exports and economic growth by making the currency much more competitive.
A dispute over interest rates led Erdoğan to replace his more mainstream finance minister last week with a loyalist, Nureddin Nebati.
- In the past two years, Erdoğan has dismissed three Central Bank presidents, raising questions about the bank's independence.
- Central Bank governor Sahap Kavcioglu and Erdogan's new finance minister have both doubled down on the current, unorthodox monetary policy.
What they’re saying: Nebati, who served three years as a deputy finance minister, this week praised the policy of cutting rates and said, "We are determined to implement it."
- Central Bank governor Sahap Kavcioglu said the unorthodox monetary policy would begin to show results early next year.
- Erdoğan, who blames the current crisis on scheming by foreign forces, predicts a 10% GDP growth rate by the end of this year and a current account surplus in 2022.
Meanwhile, opposition parties are calling for early elections and holding political rallies attacking Erdoğan's economic mismanagement.
- Erdoğan is opposed to calling elections before 2023, by which time around 9 million younger Turks will be eligible to vote for the first time.
- But he may struggle to win them over. One in five young people are unemployed.
What to watch: The Central Bank has signaled one more limited rate cut in mid-December, after which time the bank will likely end its monetary easing policy.
- As the economic struggles spread, a massive brain drain is likely in the coming months.
