According to reporting by Reuters’ Ebru Tuncay, Orhan Coskun and Nevzat Devranoglu, there is mass disagreement inside President Erdoğan’s party on economic issues. President Erdoğan’s unilateral “unorthodox economic policies” has seen the Lira lose half of its value in less than 1 year, leading to catastrophic double-digit inflation in Turkey. Sources say there is disagreement within the party ranks as to whether to stay on track or abandon the economic policies.
According to statements by nine sources interviewed by Reuters, an informal faction within President Erdoğan’s party has been meeting to advocate for a departure from President Erdoğan’s unorthodox fiscal policies; a daring move in a party where dissent is uncommon. While the reporting states that President Erdoğan is not directly involved in the talks, the meetings are attended by party officials who have held high ranking positions in the government in the past. In contrast, Eroğan’s cabinet members state that they want to continue with the current plan of cutting interest rates and heavily regulating FX and credit markets in an effort to boost exports; a strategy that has seen Lira fall from approximately 8.5 Liras to the Dollar to currently nearly 20 Liras to the Dollar in two years.
An official familiar with the matter was quoted as saying “”They are studying a new economic model… since the existing model cannot be sustained,” going on to indicate that interest rates would gradually be raised in an effort to return to a more conventional economic model. However, the new plan has not yet been presented to Erdoğan, nor is there any indication that he intends to adopt it as the article states that Erdoğan is “emboldened by a better-than-expected result on May 14”, where President Erdoğan secured 49.5%, just shy of gaining a majority share of the vote.
According to latest polls, President Erdoğan is well positioned to secure yet another victory, extending his two-decade rule over the nation into a third. An official quoted in the article states that this could lead Erdoğan to surmise that no change in economic policies are needed, leading Erdoğan to cut interest rates down further. Inversely however, another competing strategy in the party would rather preserve economic stability until local races in May next year.
Background
President Erdoğan has effectively unilaterally dictated a fiscal plan of low policy rates since 2021. Although on paper, the Turkish Central Bank is an independent body, President Erdoğan has the ability to appoint and dismiss its directors at will; which he repeatedly has when the past directors refused to cut policy rates. In the last two decades, The Turkish Central Bank has had 7 directors, the shortest lived among them was Naci Ağbal who served less than 6 months between 2020 and 2021; dismissed upon his hesitancy for cutting rates. Erdoğan’s policies has left the Lira decimated and inflation hitting up to 140% last year, according to independent research group ENAG.
Erdoğan and his latest Minister of Finance and Treasury appointee Nureddin Nebati have defended that the move has been to bolster exports and move Turkey into a manufacturing focused “Chinese economic model”.
However, due to Turkey’s foreign energy dependence, costs have roughly kept up pace with inflation, leading only to loss of purchasing power for the average Turk, and most critically leading to triple digit increases in cost of living.
