Turkish economy rings alarm bells as Erdoğan defends policy
The Turkish economy has showed signs of a further crisis after President Tayyip Erdoğan on Monday vowed an “economic war of independence,’’ sending the lira to fresh new record-low.
On Tuesday, the currency saw a historic low of 13.46 against the dollar, after the Turkish leader reiterated in an address to the nation that his administration remains determined to maintain low interest rates – a move which economists say may lead to increased inflation from economists.
Turkey’s credit default swap (CDS), which shows the country's risk level, is continuing to rise, according to Turkish economist Mahfi Eğilmez.
“As of today, Turkey is one of the three most risky countries in the world (the other two are Venezuela and Argentina.),” Eğilmez said in an article published on his personal blog on Tuesday.
The Turkey office of technology giant Apple on Tuesday suspended sales on its official site, citing uncertainty in the country over the exchange rate.
Since the start of the year, the Turkish currency has lost nearly 40 per cent of its value against the dollar while inflation in the country has registered close to 20 percent.
Turkish officials have been debating for a while over implementing a new economic programme based on lowering interest rates and raising the exchange rate, Eğilmez wrote, and thus closing the current account deficit by increasing exports and reducing imports.
Starting in September 2021, the Turkish central bank reduced the policy rate from 19 percent to 18, then to 16, and finally to 15. Erdoğan maintains the unorthodox view that lower rates will help spur economic growth and create jobs.
Last Thursday, the country's central bank cut its policy rate by 100 basis points to 15 percent, implying that more easing would arrive before the end of the year.
Following Tuesday’s lira meltdown, the Confederation of Progressive Trade Unions of Turkey (DİSK) compared Turkish minimum wage with that of China. Turkish minimum wage, which is 3,557 Turkish lira, equals to 296 U.S. dollars, while Chinese minimum wage of 2,480 Yuan is equivalent to 388 U.S. dollars, DİSK said.
Government officials, for their part, have urged austerity measures to cope with the price hikes.
A lawmaker with Erdoğan’s ruling Justice and Development Party (AKP), Zülfi Demirbağ, handed out some practical advice.
“If we eat two kilograms of meat a month, we can start eating half a kilograms. Instead of two kilograms of tomatoes, we buy only two,” BirGün newspaper cited the lawmaker as saying in a TV interview.
The lira crash has sparked reactions from the Turkish public, with people taking to the streets in capital Ankara and Istanbul.
Protesters, some of which have been met with police intervention, called on the government of Erdoğan, which has been in power for 18 years, to resign.