by Leo Kendrick
Last week’s dramatic crash of the Turkish Lira, in which it reached a record low 13.44 to the dollar before recovering slightly to below 13, has brought President Recep Tayyip Erdoğan’s unconventional fiscal policies back into public focus, with economic experts weighing in on the president’s approach while opposition politicians were quick to seize on the moment as the ruling coalition continues to suffer sliding poll numbers and poor marks for economic handling.
The currency’s crash, which reached a record low last Tuesday, came only a week after passing the milestone 10-to-the-dollar, and little over a month after passing 9, which had resulted in several firings at Turkey’s central bank. The financial turmoil caused an explosion of panic buying across the country, with long lines at petrol stations as cars queued to fill their tanks, and limits were placed in many supermarkets on the purchase of essential goods such as cooking oil. Apple temporarily suspended sales in Turkey as the currency fluctuated dramatically, dropping from 12-to-13 against the Dollar in a matter of hours. Following this dramatic crash, the Turkish economy and the president’s fiscal policies have once again taken center stage in domestic politics as opposition politicians called for snap elections, citing the president’s inability to manage the ailing Turkish economy. Country-wide presidential elections are expected to take place in spring 2023.
Maintaining low interest rates has become a hallmark of President Erdoğan’s fiscal policy, as he has often placed public pressure on the Turkish Central Bank Governors on the topic and quickly dismisses those who fail to follow a similar approach. The president’s public rhetoric on the topic frames the issue as a matter of “economic independence”, seeking to free Turkey from the control of foreign powers seeking to devalue the Lira. Last week’s crash was triggered by a speech by the president in which he aggressively defended a recent interest rate cut despite warnings from economists and experts who warn that lower interest rates will only worsen Turkey’s double-digit yearly inflation. The framing of interest rates, currency devaluation, and Turkey’s economic strife as a matter of patriotism and independence was echoed by residents of Istanbul’s Sultanbeyli district interviewed by Medyascope last week, one of whom commented: “Let the Lira reach 20-to-the-Dollar, who cares? We will get by on bread and onions…If they want, make it 30. We will not abandon our country.”
The president’s fiscal policies are guided by a philosophy in which interest rates are kept low and foreign exchange rates are “left free”, a wording that the president has himself used. Under this philosophy, it is expected that inflation will naturally drop on its own, counter to economic orthodoxy that says lower interest rates only worsen inflation. According to Medyascope contributor and economist Ümit Kumcuoğlu, the president’s unorthodox approach is not possible in Turkey, where lowering of interest rates has resulted time and again in devaluation. Professor of Econometrics Harun Öztürkler, interviewed last week on Medyascope’s This Week in Turkey segment, argued that constant currency devaluation only scares off potential investors, who wish to make future predictions and assess the riskiness of prospective investments. The president has previously argued that low interest rates make Turkey an attractive destination for investors.
Opposition politicians have also been outspokenly critical of the president’s approach over the past week. Following the currency’s dramatic fall on Tuesday, Turkey’s main opposition leaders organized a press conference calling for immediate snap elections, arguing the president was unfit to manage the country’s economy. İYİ Party chair Meral Akşener spoke at a party meeting saying: “Mr Erdoğan speaks, the dollar rises, Mr Erdoğan speaks, our nation gets poorer. No matter what you say, no matter what lies you make up, no matter what tales you tell, the cat is out of the bag, it’s the plain truth.” She also warned party members not to take to the streets and to avoid provocations. Fellow opposition coalition leader Kemal Kılıçdaroğlu, chairman of the Republican People’s Party (CHP), spoke at a press conference saying “Bring the ballot box brother, bring the ballot box. In democracies, you cannot escape the people. You are afraid, you are running away. I will do whatever it takes to force you and your party to an early election. I’m going to force you for the sake of orphans, for the unemployed, for all of the people.”