The 70 percent inflation rate is exceptionally high. How did this happen?
Turkey, like other countries, is of course affected by the war in Ukraine, which raises prices for energy and grain. But the most important explanation is that the government, especially President Erdogan, is making a mistake. Erdogan has his own theory that you have to keep interest rates low to prevent inflation.
All economists think this is nonsense. To fight inflation, you have to raise interest rates. But Erdogan insisted, this has led to inflation continuing to rise and the lira to fall. How Erdogan got his ideas is a big mystery. In recent years, a lot of central bank chiefs have been exhausted, either because of poor results or because they contradict him, and then he replaces them with whoever does what he wants. In this way he collected many pumps around him.
What is Erdogan trying to achieve with this policy?
The idea behind this is that low interest rates attract investments from both inside and outside, ensuring economic growth. And the low exchange rate of the lira is suitable for exports. in a way that works as well. Thanks to low interest rates, a lot has been invested in the past 20 years, for example in construction. But it’s not working anymore, or at least not enough to keep prices in check. Inflation is really out of control, 70 percent is crazy.
What do ordinary Turks note about this?
Homes for sale, rent, food, clothes, energy, everything became much more expensive. Owners of shops and factories that have to import materials or raw materials are paying a lot because of the weak lira, so they also get into trouble and are forced to raise their prices. There is a lot more grumbling on the street than before.
The government has taken some purchasing power measures for low-income people, such as subsidizing energy prices. But the new inflation has already offset its effect. Meanwhile, the president keeps saying, “Watch out, inflation will go down.” But for now, it doesn’t look like it, and since there are elections next June, that shift for Erdogan should come quickly.
How will the economic situation affect those elections?
The economy will be the main theme of the elections, and it could not be otherwise in this situation. As for the opposition parties, they are shooting at an open target in this regard. They do not stop talking about disastrous politics, although in return they do not offer a very distinctly different program.
Support for Erdogan and his AK Party has steadily diminished. If the elections were held now, he would lose them, according to the polls. Erdogan still has a loyal core of voters who – not without reason – think they owe him and his party a lot, and won’t let him down. But many floating voters are now considering voting elsewhere.
Erdogan associates the left and the right with the countries he was quarreling with. Is this because of his economic fears?
‘Believes. Turkey has pursued an assertive, if not aggressive, foreign policy in recent years. It supported the Arab Spring uprisings and intervened in conflicts in Syria, Libya and Nagorno-Karabakh. Erdogan has not made friends with that, but he is now trying to make up for it.
Erdogan recently visited Saudi Arabia to discuss trade and investment. Recently, those countries have been still at odds with each other over the murder of journalist Jamal Khashoggi in Istanbul, likely at the request of the Saudi crown prince.
The UAE also likes to do business with Turkey, and Erdogan can use their investments. On the other hand, Turkey is likely to act more cautiously in the region. It could no longer afford military adventures economically either.
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