The Other Tour was established in 2011 and has been offering unique city tours in Istanbul for many years. The cost of participation in our tours has remained constant at 200€ for all these years, which was equivalent to 600 Turkish Lira. However, due to the significant depreciation of the Turkish currency over the last few years, the value of 1 Euro has increased from 3 Turkish Lira to almost 30 Turkish Lira, which is a staggering 10 times higher!
The significant depreciation of the Turkish currency is just one of the many challenges that the country is currently facing, and it is likely to continue to have a significant impact on the daily lives of Turkish citizens.
TURKISH ECONOMY 101
Turkey is a middle-income country with a mixed economy that has been growing rapidly in recent decades. The country has a diverse set of industries, including agriculture, manufacturing, and services, and has a population of approximately 84 million people.
In terms of its economic history, Turkey underwent a period of rapid industrialization and modernization in the mid-20th century, which was accompanied by a shift away from agriculture and towards manufacturing. In the 1980s, the government implemented a series of economic reforms aimed at liberalizing the economy and encouraging private investment, which helped to spur further growth.
STRENGTHS AND ADVANTAGES
Today, the Turkish economy is characterized by a number of strengths and challenges. Some of the key strengths include:
Strategic location: Turkey is strategically located at the crossroads of Europe and Asia, which makes it an important hub for trade and commerce.
Diversified economy: Turkey has a diverse set of industries, which helps to reduce its reliance on any one sector.
Large and growing consumer market: Turkey has a large and growing middle class, which presents opportunities for companies looking to sell consumer goods and services.
Skilled workforce: Turkey has a relatively well-educated and skilled workforce, which makes it an attractive location for businesses looking to set up operations.
BIGGEST INDUSTRIES OF TURKISH ECONOMY
Turkey is a net importer of goods and services, meaning that it imports more than it exports. According to the Trading Economics, in 2023 the country’s total exports were approximately $19.3 billion in April, while its total imports were approximately $28.2 billion in the same month. In the January-April period of 2023, the trade deficit increased to USD 43.5 billion.
Here are some of the key industries that contribute to Turkey’s exports:
Textiles: Turkey is one of the world’s largest producers and exporters of textiles and apparel. The country has a well-developed textile industry, which produces a wide range of products including cotton, wool, silk, and synthetic fabrics.
Automotive: Turkey has a growing automotive industry, which produces a range of vehicles including cars, buses, and trucks. The country is home to several major automakers, including Ford, Fiat, and Toyota.
Electronics: Turkey has a rapidly growing electronics industry, which produces a range of products including televisions, computers, and mobile phones. The country has been investing heavily in this industry in recent years, and it has become an increasingly important source of exports.
Tourism: Turkey has a rich cultural heritage and a stunning natural landscape, which makes it an attractive destination for tourists. The country’s tourism industry is a significant source of income, with approximately 45 million visitors in 2022.
In addition to these industries, Turkey also has a significant agricultural sector. The country produces a range of crops, including hazelnuts, olives, and citrus fruits, which are major exports. Other important agricultural products include tea, tobacco, and cotton.
Overall, Turkey has a diverse set of industries that contribute to its economy, with exports playing an important role. However, the country’s economy is also subject to risks such as inflation, political instability, and global economic conditions, which can have an impact on its growth prospects.
CHALLENGES FACING TÜRKİYE
Some of the key challenges facing the Turkish economy include:
High inflation: Turkey has struggled with high inflation for several years, which has eroded the purchasing power of consumers and made it difficult for businesses to plan for the future.
Large current account deficit: Turkey has a large current account deficit, which means that it is importing more than it is exporting. This has contributed to the depreciation of the lira and made it more difficult for the country to service its foreign debt.
Political instability: Turkey has been experiencing political instability in recent years, which has created uncertainty and made it difficult for businesses to plan for the future.
Geopolitical tensions: Turkey is located in a volatile region, which has created security concerns and made it difficult for businesses to operate.
Debt levels: Turkey has a relatively high level of public and private debt, which has made it difficult for the government and businesses to invest in new projects and growth.
Currency depreciation: The Turkish lira has lost value against major currencies such as the US dollar and the euro, which has made it more expensive for businesses to import goods and raw materials.
These factors, along with others, have contributed to the challenges facing the Turkish economy in recent years. However, it is important to note that the situation is complex and there is ongoing debate among economists and policymakers about the best way to address these challenges.
Currency depreciation refers to the decrease in the value of a country’s currency relative to other currencies in the foreign exchange market. A country’s currency may depreciate due to various factors, including inflation, rising debt levels, political instability, or changes in economic policy.
The currency depreciation had a significant impact on Turkey’s economy, causing inflation to soar and leading to a recession. The cost of imported goods increased, and businesses that had borrowed in foreign currencies found it increasingly difficult to service their debts. The crisis also triggered a sell-off in Turkish stocks and bonds, leading to a decline in investor confidence.
To stabilize the currency, the Turkish government implemented a series of measures, including raising interest rates and tightening monetary policy. The measures helped to stabilize the lira, but the currency remains vulnerable to external shocks and is still significantly weaker than it was before the crisis.
Overall, the currency depreciation in Turkey has been a significant challenge for the country’s economy, and it will take time for the country to fully recover from the crisis.
There have been comparisons made between Turkey’s economic policies and those of China, as both countries have pursued export-oriented growth strategies. However, it’s important to note that there are significant differences in the economic models of the two countries, and the causes of currency depreciation in Turkey are complex and multifaceted.
WAS IT A CONSCIOUS CHOICE OF THE GOVERNMENT?
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 40% 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.
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.
2023 Recent Developments
The Turkish economy has witnessed significant developments from April 2023 to date, showing signs of recovery and strategic repositioning to foster economic stability and growth.
In the second quarter of 2023, Turkey reported a 3.8 percent year-on-year increase in its Gross Domestic Product (GDP). This positive economic growth rate, as announced by the Turkish Statistical Institute, allowed Turkey to outpace many of its peers. Notably, the economic performance in this period was driven by a complex interplay of domestic and international economic factors.
Despite the positive GDP growth, there was a contraction in the country’s foreign trade activities during the same period. In April 2023, Turkish exports and imports decreased by 17.1% and 4.8%, respectively, compared to April 2022. Consequently, the foreign trade deficit expanded by 42.1% in April and 32.9% over the January-April 2023 period.
However, the nation grappled with a soaring inflation rate, which reached an unprecedented peak of 85% during 2023. Nevertheless, with targeted interventions, this is projected to decelerate to 70% by the end of the year and further to 40% in 2024. The anticipated reduction is attributed to a combination of strategies including interest rate cuts, leveraging the base effect, consideration of external economic dynamics, and the implementation of risk mitigation measures.
To curb the soaring inflation, Turkey’s central bank initiated a series of interest rate hikes. From a rate of 8.5% in June, the interest was increased substantially to 15%, followed by another hike to 25% in August 2023. These decisive moves marked a departure from the years of economic unorthodoxy under the leadership of President Erdogan and signaled a shift towards a more orthodox economic policy framework.
In a remarkable turn of events, the rate hikes continued with the appointment of the new Central Bank head, Hafize Gaye Erkan. Under her guidance, the bank raised the interest rate to 25% on August 24, followed by a substantial increase to 30% on September 21, with an anticipated further hike to 35% on October 26. These decisions marked a noticeable shift in the monetary stance, with President Erdoğan endorsing the tightening monetary policy to battle the soaring inflation rates despite his historical opposition to high interest rates. Erkan, armed with seasoned financial acumen, has been steering these changes, aiming to stabilize the Turkish Lira and restore economic stability amidst a turbulent inflationary scenario.
The steering wheel for these economic reforms and policies is held by Mehmet Simsek, the Economy Minister appointed on June 3, 2023. With a robust background in economic and financial affairs, including serving as the deputy prime minister for economic and financial affairs, Simsek is known for his pro-market and reform-oriented stance. His economic acumen has been instrumental in formulating fiscal policies that not only aided Turkey in navigating through the global financial crisis but also emboldening it to initiate far-reaching economic reforms. Together with Erkan, their collaborative efforts are paving the way for a more stable and economically viable Turkey, demonstrating a new chapter of economic adjustments that seek to align the monetary policy with prevailing economic exigencies, and striking a balance between curbing inflation and fostering financial stability.