The Grand Turk seems angry with the economy. President Recep Tayyip Erdogan keeps insisting that high interest rates are a source of inflation. Suddenly, while the rise in prices is eating away at the country and the monetary policy it instills is criticized from all sides, he declared on December 20 that it was not necessary ” waits(D) nothing else from (him) “ that keeping rates as low as possible.
→ READ. In Turkey, support for Recep Tayyip Erdoğan is crumbling
The Turkish president has regularly invoked, in recent weeks, Islamist precepts prohibiting usury in order to continue lowering interest rates, even if economic theory recommends otherwise. No matter: the autocrat always demands that the national central bank open the floodgates of credit. Erdogan wants to boost growth at all costs (7.4% in the third quarter) by relying on the internal market – the country has recorded 5% average annual growth since taking office, first as prime minister, in 2003 .
But the lights are red. Excess credit has its consequences: inflation reaches 36% over one year, and is thus more than seven times higher than the initial objective of the government, according to official figures released Monday, January 3 – economists speak of more than 80%… Worse, for companies, the increase in production costs exceeds 40%, just like, for citizens, that of foodstuffs (+ 86% for oil and + 54% for bread).
The currency has lost 45% of its value since the start of the year. This promotes exports and revives the manufacturing sector, gripped by the Covid. But the richest Turks buy dollars to hedge against devaluation: according to the central bank, more than half of the deposits in November were made in a foreign currency. To calm the fire, Erdogan took out the checkbook on December 20 (see below). A few days earlier, the autocrat had already announced a 50% increase in the minimum wage – which should fuel inflation.
A wall of structural difficulties
There was no question for him, however, of deviating from his monetary policy. Which is not without causing perplexity. “To export, Turkey must first import, explains Erinç Yeldan, professor of economics at Kadir Has University in Istanbul. The country is very dependent on imports: for raw materials, for intermediate goods… They are financed by recourse to debt, accumulated in particular from foreign creditors. As a result, this strong growth rests on an unsustainable basis. “ Debt held by foreign investors makes Turkish debtors vulnerable.
“Economic growth was driven by good performance in the construction sector, adds Didier Billion, researcher at Iris, the Institute for International and Strategic Relations. But this is not enough to be a globalized economy: the fundamental challenge is to build a performing industry with high added value. “
While the presidential and legislative elections are scheduled for 2023, it is difficult to dispute this headlong rush. “Erdogan, who concentrates the powers, improvised economic leader of the country, explains the researcher. He has already sacked two finance ministers in just over a year, as well as central bank executives, including the governor. “
Protests are being raised over the soaring cost of living. How far will the slingshot go? “In the upper echelons, fear dominates and the administration keeps a low profile, analysis Erinç Yeldan. How much do the population support the protesters? It’s hard to say because the media are controlled and political oppositions are poorly structured. “
The Turkish lira crisis takes a political turn
After a month of historic losses, the Turkish lira rallied sharply last week, following emergency measures announced by President Recep Tayyip Erdogan. The Head of State announced that the value of certain bank deposits in pounds would be linked to the dollar rate. In short: the state will partially compensate citizens whose savings are eroding. But many observers point to the risks of this new mechanism and question its sustainability.
One thing is certain: the Turkish lira crisis has taken a political turn with a call from the new finance minister to file a complaint against economists and journalists who have commented on the collapse of the national currency. “File a complaint against all those who have advised caution by saying that the exchange rate is soaring, he launched. They deceived you. “