Can the Turkish Economy Survive Another Five Years of Erdogan?

Recep Tayyip Erdogan Last Sunday, he was re-elected as Turkey’s president until May 28 A tight second round win. All have been condemned by the opposition and the Organization for Security and Co-operation in Europe (OSCE), amid criticism of democratic abuses.

Erdogan, Q After two decades at the helm of the nation Eurasian, who will lead the country for another five years, has received congratulations from major world leaders, although some of the most enthusiastic have come from Vladimir Putin, Lula da Silva or Nicolás Maduro.

But the markets did not take the election result too well The Turkish lira sank to a new record low this week, moving between 21 and 22 units per euro. The central bank—already seeing negative foreign currency reserves—attempts to artificially support the value of the Turkish currency through high-paying savings accounts, limits on withdrawals, or the sale of gold and coins.

The first years of the Turkish leader’s administration are over, its openness and moderation allowed the country to experience a certain economic miracle. Thus, political stability, the health of public accounts, and institutional quality have provided high growth rates, controlled inflation, and moderate unemployment, allowing Turkey a robust growth so far this century.

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Erdogan’s mode of intervention

But still Islamic doctrines are increasingly gaining relevant weight Under Erdogan’s social and economic policies, political repression has intensified and civil liberties have been undermined. This, along with economic instability, makes Turkey an increasingly uncomfortable and problematic partner for the West.

In the specific case of economic management, Türkiye adopted an ultra-loose monetary policy, which weakened the value of the lira and triggered a severe inflationary problem. Erdogan, contrary to all economic conventions, argues that lowering interest rates is the best recipe for guaranteeing growth and fighting inflation. To carry out his plan, he has ripped away whatever freedom the central bank had left. But apparently, this policy has fueled inflation and disrupted the economy. So, with the recent fall, The lira has already lost 80% of its value against the dollar in the past five yearsAnd the handling of official exchange, as in countries such as Argentina, does not match the money offered by private money changers.

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This loss in the value of the lira translates into massive increases in commodity prices ahead of Citizens’ Day. specific, Inflation recorded in April was 43.7%. Respect to the same month of the previous year. Accumulating data on the increase in prices already experienced in 2022, it closed with 72% inflation, or an uninterrupted path began with a CPI of more than 10% per year since 2017.

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At the same time, the country’s economy is in decline, and growth forecasts for the coming years are moderateRegistered unemployment is among the highest levels in the OECD – Over 10% – International distrust is growing due to Erdogan’s closeness to leaders like Putin and his alienation from Western powers. Code of Economic freedom That explains the picture perfectly: Turkey has fallen from 58th place in the world in 2018. 104th place In this year 2023, in large part due to the breakdown of the rule of law.

Faced with this situation, and with the elections already won, Recep Tayyip Erdogan faces a difficult situation in his new legislature. If you want to control inflation decisively, There is no alternative but to reverse monetary policy Raising interest rates, currently 8.5%. The problem? Well, this move, while stabilizing the currency, will contribute to a definite stagnation of the Turkish economy, at least in the short term. The risk is compounded by skyrocketing unemployment and social unrest.

However, the Turkish leader has shown no signs of a turnaround in his economic policy. His announcements, by contrast, continue with a more detailed strategy: Promises of pay rise for civil servants, abolition of retirement age, free gas… Of course, all this will do nothing but prop up the country’s chronic public deficit and weaken the currency further. So, whatever path Erdogan chooses, Turkey’s next 5 years in charge will not be easy, Erdogan can be sure. Of course they will not be for their countrymen either.

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