ISTANBUL.- Inflation in Turkey refuses to drop below 44% a year, Turkish consumers notice that as the months go by and they buy less and less food with their salaries. Now the government’s largesse and its efforts to prop up the exchange rate threaten economic growth and could drag the country into recession.
A tough challenge for the candidate who will win the second round of the presidential election this Sunday. The president is even more complicated Recep Tayyip Erdogan Reconfirmed in power because his policies, including those implemented to ensure his reelection, exacerbated the problems.
“The relative strength of the economy in recent quarters has been the product of unsustainable policies, so a contraction or recession is likely.”Brad W. Setzer, an expert on global trade and finance at the Council on Foreign Relations, a Washington think tank.
“When the Turkish lira is finally devalued, workers will necessarily feel poorer,” Setzer says. “It will be very difficult for people to find work and earn a living wage.”
Economic turmoil in Turkey, one of the world’s 20 largest economies. It can resonate internationally because of the country’s extensive network of global trade links. It also looks like the economy will dominate the immediate agenda for whichever of the two candidates wins this Sunday.
In his first 10 years in power, Erdogan presided over a spectacular economic boom that transformed Turkish cities and lifted millions out of poverty. But in recent years some of those achievements have crumbled. Since 2018, the Turkish lira has depreciated 80% against the dollar, and annual inflation has eased slightly from more than 80% last year, but was still 44% last month. Thousands of Turks are living in poverty.
The conventional recipe for reducing inflation usually involves an increase in interest rates. Erdoğan insisted on doing the opposite and repeatedly let them down. According to economists this exacerbated the problem.
During the election campaign, Erdogan has shown little intention of changing economic course. He reiterated his belief that low interest rates spur economic growth, guaranteeing cheap credit to boost Turkish manufacturing and exports.
“We will work tirelessly until Turkey is one of the 10 largest economies in the world,” the president said at a campaign event this month. “If we can prevent pensioners, workers and public servants from being crushed by inflation, we will thank you for all your support,” he added.
Among other campaign measures, he promised to lower interest rates and reduce inflation. “When interest rates go down, you will see that inflation goes down,” he told supporters in Istanbul last April.
Ahead of the election, with the inflation crisis high on voters’ minds, Erdoğan launched a number of policies that were costly to public coffers and aimed at mitigating the immediate effects of inflation on voters: He raised the minimum wage several times over, gave raises to public employees and authorized Social Security freezes that allowed many to retire early. All those promises must be fulfilled if they win the election, which is a heavy legacy for the future government.
The destruction caused An earthquake last February devastated much of southern Turkey Adding to the economic pressure: In March, the government estimated damages at $103 billion, or about 9% of the national gross domestic product.
At the same time, the government intervened heavily in the foreign exchange market to stem the fall of the Turkish lira by selling foreign currency reserves. According to Central Bank data, Turkey sold $7.6 billion in the first week of May, the biggest drop in stocks in more than two decades.
To overcome that problem, Erdogan struck deals with countries such as Qatar, Russia and Saudi Arabia that would help him increase central bank reserves. In March, Saudi Arabia announced $5 billion in spending. Russia agreed to delay Turkey’s payments for Russian natural gas imports until after the election.
The fine print of those deals has not been made public, but economists say they are part of Erdogan’s short-term strategy, more focused on winning elections than ensuring the country’s long-term fiscal health. If Erdogan wins the polls, which many analysts believe he will, it is unlikely that he will change course drastically.
“I don’t think the current government has a plan to fix this situation,” said Selva Demirolf, an economics professor at Istanbul’s Koç University. “I don’t see the current government having a way out.”
If Erdogan sticks to his current script, economists expect the Turkish lira to depreciate further, as the government imposes restrictions on the withdrawal of foreign currency deposits. And the state will run out of reserves to pay its bills.
In his campaign, The political opposition pledged to pursue more orthodox economic policies, including raising interest rates to reduce inflation. As well as restoring the central bank’s autonomy, its monetary policy is now believed to be dictated by Erdogan.
But if I win Kemal Kilicdaroglu, According to his own economic advisers, the opposition candidate will have a financial situation that requires immediate action.
In addition to having to meet new expenses added by Erdogan during the campaign, The new government must honor its financial agreements with other countries. Whose terms you don’t know.
If I come to power, The opposition should implement short- and medium-term plans to improve the country’s finances and restore investor confidence. However, to limit his room for maneuver, there will be a parliamentary majority led by Erdogan’s party and its allies.
Ben Hubbard
The New York Times
