Magda Lipan*

Turkey President Recep Tayyip Erdogan is staring at two problems amidst reports of dwindling people’s trust in his regime. Both problems, namely soaring inflation and steep depreciation of Turkish Lira, (TL), are a direct fall-out of his economic policies, which are often dubbed as “unsound”.

Put simply, Turkey is feeling the heat of economic mismanagement. And as the mascot of the country with an Islamist vision, Erdogan is squirming under a cloud. Early elections appear as a panacea but his very own electoral prospects are neither here nor there.

The Erdogan government is increasingly leaning on sectors that can generate foreign currency, which is a euphemism for the green backs.  Three months ago, it raised to 40% the percentage of foreign currency revenues that exporters must sell to the country’s apex bank.

Guided by its despondency, the regime ignored the reality that the rule change could force exporters to move their operations to outside the country, and thus protect their kitty from the preying eyes of the regulator at home. 

In the process, the Republic of Türkiye, located mainly on the Anatolian Peninsula as a trans-continental nation, has become “a country in need of a cent”.

No surprise, there are no takers for Erdogan’s claim that ‘falling Lira gives a competitive advantage’ to Turkey in the global export market. In fact, the Erdogan critics, whose number is swelling by the day are openly mocking him.

The value of Turkish Lira against the American dollar is falling continuously. A six-day hammering in the first week of June took the shine off TL and it tumbled to 17 TLs per dollar. The depreciation has eroded the purchasing capacity of consumers and companies alike.

The rising cost of food, medical care, energy and other essentials has pushed millions of Turkish citizens closer to poverty. Result: support has sapped for the 12^th President of Turkey just when he decided to flex his muscles on the NATO front and resolved to carve out a role for himself in the Ukraine theatre.

Turning to text book economics, the Erdogan government has pumped billions of dollars to prop up the sinking Lira. It turned out to be counter-productive, indeed, ineffective and put pressure on the country’s forex reserves.

In the 2019-20 fiscal, the Central Bank of Turkey sold USD 128 billion in a ‘Save Lira’ campaign. Instead of propping up Lira, the reserves dried up to a record low of USD 7.55 billion. By this April, however, reserves started looking up with the Central Bank reporting USD 17 billion in its vaults.

Ankara tried to lower interest rates not once but four times to help expand the economy and eventually calm inflation. The move ended up as yet another disaster for the beleaguered President.

Since the energy prices globally were increasing rapidly, the interest operation, instead of creating an artificial depreciation in exchange rate, made domestic prices almost double.    

Gasoline prices increased to 9.67 TL from 7.76 TL in November 2021 and now stand at 19.80 TL, almost an increase of 105%. Between Nov 2021 and April 2022, domestic natural gas price increased by 68%. The hike was 125 per cent for industry and power plants, though.

Surprisingly, despite the pronounced Lira weakness and a precarious financial situation, President Erdogan has endeavored to become a key player in the Ukraine theatre by hosting grain shipments and cease-fires, providing Ukraine with drones, and blocking Sweden and Finland entry into NATO.

The adventure has brought him no brownie points. Not even respite on the economy front. It, in fact, crippled the economy. Historically megalomania never pays dividends. Now for Erdogan too. What propelled him to meddle in the Ukraine crisis and NATO’s expansion while exposing his feet of clay virtually on the domestic front? Neither he nor his acolytes have any short answers.

Officially, Turkey’s inflation almost touched 75% mark, the highest in any G-20 nation.   But independent economists aver that the true inflation is nearly double at around 150 percent. And earned the wrath of the regime, which cracked the authoritarian whip. In what was no more than a gag order, the government’s statistical agency sued ENA Group over its inflation forecasts.

Turkey is ducking bouncers by blaming international factors for its economic woes, particularly high inflation. This is a clever attempt to absolve the Erdogan administration of the blame for the mess that stemmed from what economist Paul Krugman terms as a classic currency-and-debt crisis.

Things are not likely to improve in near term. Turkey imports almost all of its energy needs making it vulnerable to price swings in the world energy market due to Ukraine war and disruptions in the supply chain.   

Turkey has no insurance on the commodities front either.  Due to Ukraine war, commodity prices rose globally since this February. It pushed up the cost of living to the dismay of the poor people in particular.

Turkey’s poverty threshold for a family of four has risen to 16,052 Liras four months ago. It is almost four times higher than the minimum wage. At the same time, the hunger line reached 4,928 Liras, which is 675 Liras more than the minimum wage of 4,250 Liras.

The unemployment rate as per Turkstat rose to 22.9% this January. Enough reason for the unfolding public protests across the country. And for the reign of repression.

Whether, as Noam Chomsky says, “Erdogan is destroying the remnants of democracy in Turkey while basically trying to create something like the Ottoman Caliphate, with him as caliph”, is not relevant to this commentary.

Nor is the critique that in recent years, Turkey under Erdogan has experienced democratic backsliding, corruption and media curbs.    

Also, the well documented reality check that early days of his rule had seen economic highs and now it is witnessing the absolute lows.

 At times of currency-and-debt crisis, “the quality of leadership suddenly matters a great deal. You need officials who understand what’s happening, can devise a response and have enough credibility that markets give them the benefit of the doubt. The Erdogan regime has none of that,” Paul Krugman remarked in his NYT (The New York Times) column four years ago (24 May 2018).

The verdict has shelf life now as well.

The short point is that the turmoil in Turkey has no quick – fix solution. It may persist as the country has already slipped into general election mode with the ballot scheduled for early next year.  

Three years ago, in local elections, Erdogan’s party, AKP, lost control of Istanbul and Ankara for the first time in 25 years. Also in five of the six largest cities of the country.

Frankly, the unfolding mass discontent may not auger well for Erdogan prospects in the upcoming elections. Even if he advances the poll date.  Only a miracle can avert repeat of history, more so as the factors responsible for 2019 reverses are still at play.  

—– The writer based in Boston is a regular contributor to Poreg