Mehmet Şimşek, Turkey’s Minister of Treasury and Finance, marks one year since his appointment this week as the country continues to battle persistent inflation. Appointed to his role following President Recep Tayyip Erdoğan’s May 2023 reelection, Şimşek’s assumption of the post was billed by observers as a return to ‘economic orthodoxy’ following several years of runaway inflation driven in part by Erdoğan’s insistence on low interest rates. Although unemployment has fallen, inflation has continued apace, with both the US Dollar and Euro gaining 52% against the Turkish Lira since Şimşek took office.
Şimşek, a well-known and respected economist in international finance circles, had previously served as Minister of Treasury and Finance from 2009-2015, during which he successfully navigated the Turkish economy through the global financial crisis of 2008.
Despite the optimism surrounding Şimşek’s June 2023 appointment, some expected his tenure to be brief; a return to economic orthodoxy meant an increase in interest rates at Turkey’s central bank in order to combat inflation, antithetical to President Erdoğan’s economic policies. Furthermore, turnover in such positions has been high amidst a turbulent Turkish economy. Central Bank Governor Hafize Gaye Erkan, appointed the same week as Şimşek, left office in February 2023 under dubious circumstances, failing to serve a full year in office.
Interest rates soar
In mid-June 2023, just weeks after Şimşek and Erkan’s appointment, Turkey’s central bank raised interest rates for the first time in 27 months. The 6.5% hike saw the rate increase from 8.5% to 15%. In the year since, successive hikes have followed, and the rate now stands at 50%.
Inflation persists
While conventional economic wisdom says interest rate hikes help slow inflation, devaluation of the Turkish Lira has persisted throughout Şimşek’s first year in office. While the Lira stood at 21 against the US Dollar in June 2023, the figure stands at 32 to the greenback today.
Yearly inflation stood at nearly 40% when Şimşek took office, and has increased to approximately 75% today, although the Finance Minister has predicted that this figure will drop to around 40% by the autumn.
Regarding original goals to reduce inflation to single digits, Şimşek recently said: “This is an extremely tough task that requires time, persistence, and patience,” while predicting that Turkey is on the threshold of a period of disinflation.
Drop in unemployment
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A small drop in unemployment over the past year has been seen as one of the bright spots on Şimşek’s report card. While the figure stood at 9% in June 2023, it has since dropped to 8.6%, according to numbers from March 2024.
Debates over minimum wage, pensioner checks
Some austerity measures spearheaded by Şimşek have received mixed reactions in Turkey’s domestic political sphere. In early March, just weeks before the March 31 local elections, President Erdoğan announced that pensioner checks would not be hiked, saying that an increase would not be possible even if other cuts were made. The failure to hike pensioners checks was cited by many as a contributing factor to the president’s Justice and Development Party (AKP)’s poor showing in the polls, which saw the main opposition Republican People’s Party (CHP) claim a plurality of votes country-wide for the first time since 1977.
A potential mid-year minimum wage hike has also remained a topic of debate. While Turkey’s minimum wage saw a hike in the middle of 2023, Erdoğan and his economic ministers have promised that only one hike would be instituted in 2024 in a bid to fight inflation. The current minimum wage, which entered effect in late December 2023, stands at 17,200 Turkish Lira per month. This figure has recently been criticized as falling below the hunger limit, which has now increased to around 21,000 per month.
Article by Cenk Narin, translated/edited by Leo Kendrick
