Turkish economy in shambles

Currency depreciation is not usually a conscious choice by governments as it can have negative impacts on the economy, such as inflation and reduced purchasing power. However, in the case of Turkey, the government has been accused of indirectly supporting a depreciation of the Turkish lira.

It’s possible that the Turkish government may have hoped that a weaker lira would make Turkey a more affordable destination for foreign tourists, which could in turn boost the country’s tourism industry. However, it’s important to note that currency depreciation alone is not enough to drive tourism growth, as other factors such as safety and security, infrastructure, and marketing also play important roles in attracting tourists. Luckily, Turkey is still doing great in the tourism department.

Moreover, the depreciation of the lira has made imports more expensive, which has contributed to inflation and made it more difficult for businesses to import raw materials and machinery. It has also made it more expensive for Turkish companies to pay back their foreign currency debt, which has contributed to financial strains in some sectors.

ONE MAN, AND ONE MAN ONLY

As the current President of Turkey, Recep Tayyip Erdoğan plays a significant role in the country’s economic policies and decisions. He has been in power since March 9th of 2003, and during his tenure, the Turkish government has implemented various policies that have affected the country’s economy.

Erdoğan has pursued an economic policy that prioritizes growth and development. This policy has led to the implementation of various infrastructure projects, including highways, airports, and bridges. However, the implementation of these projects has also contributed to Turkey’s growing external debt, which has further compounded the economic challenges facing the country.

Moreover, Erdoğan has been criticized for exerting significant control over Turkey’s central bank, which has led to concerns about the independence of the institution. The central bank’s inability to effectively manage the currency crisis and its delayed response to raising interest rates to curb inflation have also been attributed to political pressure from Erdoğan’s government.

In summary, Erdoğan’s economic policies and political influence on the central bank have played a role in Turkey’s economic challenges, including the currency depreciation, high inflation, and growing external debt.

INTEREST RATE OBSESSION

President Erdoğan has been a vocal critic of high interest rates for a long time. He believes that high interest rates are a tool used by international financial institutions to undermine Turkey’s economy and that they harm the average Turkish citizen by making borrowing more expensive.

Erdoğan’s economic philosophy is heavily influenced by Islamic principles, which place emphasis on the importance of low interest rates as a means of ensuring economic stability and reducing income inequality. He has argued that interest rates should be kept low to encourage borrowing and stimulate economic growth.

However, many economists and analysts argue that Erdoğan’s stance on interest rates is misguided, and that high interest rates are necessary to combat inflation and stabilize the economy. Inflation has been a persistent problem in Turkey, and many believe that Erdoğan’s opposition to high interest rates has greatly contributed to the country’s economic troubles in recent years.

A SHIFT IN COURSE: Turkey’s Interest Rate Hikes

In a remarkable turn of events, 2023 saw a series of significant rate hikes by the Central Bank of Turkey. On August 24, the bank raised the interest rate to 25%, followed by another substantial increase to 30% on September 21, and is anticipated to further hike the rate to 35% soon.

These decisions marked a noticeable shift in the monetary stance under President Erdoğan’s leadership, who, despite his historical opposition to high interest rates, endorsed the tightening monetary policy to battle the soaring inflation rates. The aggressive rate hikes, which came as a response to the spiraling inflation and were aimed at stabilizing the Turkish Lira, reflected a change in the economic approach to mitigate the country’s financial woes. This new chapter of economic adjustments underlines a crucial attempt to align the monetary policy with the prevailing economic exigencies, seeking to strike a balance between curbing inflation and fostering financial stability.

MILLIONS IN RELIGIOUS SCHOOLS

Erdoğan’s focus on religious education has led to the growth of religious schools, or “Imam Hatip” schools, which now make up a significant portion of Turkey’s education system. While these schools can provide a valuable education for some students, critics argue that they place too much emphasis on religious education at the expense of secular subjects. This could potentially limit the career opportunities of students who attend these schools, particularly in fields that require a strong foundation in math and science.

It’s difficult to make a direct connection between Erdoğan’s policy of promoting religious schools and the decline of the Turkish economy. However, it’s worth noting that education plays a crucial role in the development of any economy. In the case of Turkey, the country has made significant strides in improving access to education over the past several decades. However, there are still challenges in terms of the quality of education and ensuring that students are adequately prepared for the workforce.

WHAT TO EXPECT IN THE NEAR FUTURE

The economic outlook for Turkey in the near future is subject to several factors, both domestic and global. Here are a few key points to consider:

• Inflation: One of the biggest challenges facing the Turkish economy is high inflation, which has been running above 60% for much of the past months. The Turkish government has been implementing policies aimed at curbing inflation, such as raising interest rates, but it remains to be seen how effective these measures will be.

• Political stability: Turkey has experienced a great deal of political turbulence in recent years, from suicide bombings to coup attempts, which has contributed to uncertainty and made it difficult for businesses to plan for the future. If the political situation stabilizes, it could help to boost confidence and attract more investment. But we all know that this is very unlikely. If anything, things are about to get worse, much worse! Yes it’s a bleak picture and I sure hope I’m wrong.

• Exchange rate stability: The depreciation of the Turkish lira has been a major concern for the country’s policymakers, as it has contributed to inflation and made it more difficult for businesses to operate. The government has been taking steps to stabilize the exchange rate, such as selling foreign currency reserves and tightening monetary policy, but these efforts have had mixed results.

• Global economic conditions: Turkey is a small open economy that is heavily reliant on exports, so global economic conditions play a significant role in its economic outlook. If there is a global slowdown, it could reduce demand for Turkish exports and hurt the country’s growth prospects.

December 2023 Update

Turkey’s central bank raised its key interest rate to 42.5%, marking a continuation of aggressive measures to combat soaring inflation. This latest increase follows a series of rate hikes totaling 3,400 basis points since June. Despite this, the central bank plans to conclude the tightening cycle soon. The Turkish lira remained stable following the announcement, and analysts anticipate further tightening early next year before a potential easing. The high interest rates aim to address inflation, trade deficits, and attract foreign investors, but also pose challenges for Turks dealing with debt and the cost-of-living crisis.

For more detailed information, you can read the full article on Reuters.

Conclusion

Overall, the near-term economic outlook for Turkey is uncertain and subject to plenty of risks. However, the country has a diverse set of industries and a growing consumer market, which could help to support growth in the long term. It’s just that this guy’s gotta go. And it doesn’t seem like he will any time soon.