Despite the high inflation, the Turkish central bank has been lowering interest rates for months - the national currency, the lira, has lost massively in value. For a short time this trend has reversed. But it remains unclear how sustainable this development is. What is Erdogan's economic policy?
The Turkish lira goes on a roller coaster. Turkey's national currency lost more than half of its value by December 20th this year, then gained 25 percent literally overnight - and how the journey will continue is completely uncertain. There is nothing to worry about, says President Recep Tayyip Erdogan: This is temporary turbulence at the start of his new economic policy - Turkey will soon take off and fly. With a crash pilot at the helm, his critics counter: The government is steering the country with full force towards a crash.
“We're lowering interest rates. You shouldn't expect anything else from me. As a Muslim, I do what the commandments of Islam require, and I will continue to do so. "
That was Erdogan on December 19, and the lira plunged into free fall: a frenzied acceleration of its long descent. While one euro cost nine lira at the beginning of the year, in May it was already ten lira, in November more than 15, and after this speech by Erdogan, the rate at times reached more than 20 lira to the euro - to the desperation of millions of people who lost their wages and saw savings evaporate for months.
A queue in Istanbul: people are standing in line for cheap bread that the city subsidizes. Bread costs three lira at the bakery, here it is sold for one and a quarter lira - and people stand in line for hours in the rain. An old man bursts into tears when a Turkish reporter gives him the microphone.
Economic crisis as a "national liberation struggle"
He will never forgive those who did this to him, the old man sobs. Another man in line agreed:
“Let those who have put our country in this position should be ashamed. We want to live humanely. "
Open and, above all, public protest against economic policy is, however, the exception. This is only partly because demonstrations are beaten up and protesters arrested - even citizens who express themselves critical in street polls risk arrest. And just last week, several reporters were arrested for doing street polls on the dire economic situation. However, many Turks do not want to rebel - they trust Erdogan and hope that his course will prove to be the right one. Because Erdogan has declared the economic crisis to be a national liberation struggle:
“Dear nation, we had a choice: On the one hand, we could have stayed with the previous understanding of economic policy and said goodbye to investment, production, growth and jobs. On the other hand, the choice was to continue on our way with our own priorities and to take up the fight. As always, we decided to fight. For perhaps the first time in its history, Turkey has the chance to create an economic policy according to its own needs and realities.
The cornerstone of the new economic policy, as Erdogan has repeatedly emphasized for months, should be low interest rates.
“Instead of remaining in the unsuccessful endless loop of high interest rates and low exchange rates, we now want to pursue an economic policy aimed at investment, production, jobs, export and growth. That is why we want low interest rates. So we no longer want to listen to the economists serving foreign powers. "
Devastating way: low interest rate policy
Economic experts at home and abroad have been urging the Turkish central bank to raise interest rates for months in order to tighten money. The government ruled that out. President Erdogan has the support of his coalition partner Devlet Bahceli from the nationalist party MHP. Actually, the government would not have to decide on interest rates, because that is the responsibility of the Turkish central bank - and like the judiciary, it is nominally independent of the government. That too has to change, demands Devlet Bahceli:
"The commandments of democracy and the national will make it necessary to put the independence of the central bank up for debate in our new system of government."
In fact, the government has long since controlled the central bank, whose independence only exists on paper. Recently, President Erdogan has replaced the head of the central bank several times if he did not cut interest rates quickly enough. Finance Minister Nureddin Nebati, who is also new in office, promised business before the latest central bank meeting that interest rates would not be increased - and in fact they were cut again in December.
The blame is shifted abroad
In the meantime, prices for rents, electricity and food have exploded: imported goods from energy to medicines are billed in dollars or euros anyway. The prices for domestically manufactured goods also depend on the development of the exchange rates because structural steel, fertilizers or fuel have to be imported. The cost of living in Istanbul has increased by half within a year. This is not due to the government's monetary policy, says President Erdogan. Guilt was a conspiracy abroad against Turkey:
“We see through the plot of those who have always wanted to push our country away by using exchange rates, interest rates and price increases, and we are opposing this. Just as we prevailed against the domination of the military, as we defeated terrorism and put down the coup, so will we, with God and the nation, also win this war of economic liberation. "
In the media close to the government there is mobilization against the supposed external enemy of the economy. The news channel A-Haber, for example, talks about the threat from outside from morning to night, as said by this MP from the ruling AKP party:
“It's like in the Turkish liberation war of 1918/19. At that time our country was attacked militarily, today it was attacked economically. But thanks to the upright and determined demeanor of our President, we will pass this test. "
A constant barrage of threat propaganda rattles on the Turks, garnished with perseverance slogans like this advice from a commentator on the broadcaster A-Haber:
"We'll all have to grit our teeth a little, there will still be turbulence - but that's all just turbulence as we all know it from flying: We send a quick prayer to heaven, but in the end we land safely."
Raise interest rates - without raising interest rates
The supporters of the president now see their trust confirmed: like a magician, Erdogan pulled out of his hat during the recent decline in the lira on December 20 that the state would compensate for the losses of savers caused by the fall in the price of the lira - and within hours the rate of the lira soared that even experienced traders became dizzy.
The government wants to curb the escape from the lira in euros, dollars and gold and convince the Turks to bet on their own currency. Because most Turks have not trusted it so far - a look at their bank accounts shows: According to the central bank, there were 400 billion dollars in Turkish accounts on December 1 and only 250 billion lira - so Turkish savers keep almost two thirds of their savings in foreign currency and not in local currency. In addition, there is gold with a total value of hundreds of billions of dollars, which is kept under the pillow in many Turkish households. Erdogan has long been calling on citizens to exchange their gold and foreign currency and invest in lira, but so far they have not been persuaded to do so - with good reason, says journalist Rusen Cakir from the Medyascope portal:
"Erdogan says: exchange your foreign currency and benefit from our new economic model - and what happens? Nothing happens. In the past, some people would exchange their currency when he made such appeals, and some would publicly burn dollar bills. But now it's different. "
Gold and foreign currency are only exchanged for lira by Turkish consumers in small slices when the bills come; this way, at least part of the value can be stretched in order to make ends meet. Millions of people have simply not been able to afford to trust in the lira, because every second employee in Turkey earns a minimum wage - and that was worth 310 euros at the beginning of the year, but at times less than 140 euros in December. Erdogan's latest plan is now supposed to turn things around, and in the hours after his announcement, lira worth up to 1.5 billion dollars were actually bought - whether from banks, traders or savers was initially unknown. So a brilliant idea from the President? More like sleight of hand, says Durmus Yilmaz, former central bank governor and now in the opposition:
“This is an interest rate hike and nothing else - a typical U-turn by the ruling party. The government wanted to cut imports to boost domestic production, so they let the lira plummet. But now they have seen that this will not get inflation under control. That is why they have now thrown in the towel, stopped this policy and hammered in the coffin nail. "
Export-oriented economy
Other economic experts also refer to the government's new project as an indirect rate hike. According to the Treasury Department, the central bank will publish an official dollar rate every day from now on. Savers determine whether they should settle after three, six, nine or twelve months. If the loss in value of the lira against the dollar is above the key interest rate of 14 percent during this period, you will be reimbursed the difference from the state - i.e. from the taxpayer. In practice, Turkish payers can enjoy dollar interest without buying dollars - and Erdogan can take action against inflation without giving up his Islamic-ideological rejection of interest - at least in nominal terms. The question now, however, is what will become of Erdogan's previous economic model,
“Erdogan's economic policy is based on the following consideration: We are lowering production costs - although wage costs have already melted down due to the fall in the exchange rate. So we are lowering costs so that exports increase. Exports bring in foreign currency and that brings us growth. "
Low costs and high exports are the way to success, Erdogan announced up to his U-turn, up and down the country:
“We only want one thing : export, export and then export again. We will be successful with that. "
Experts are skeptical, they suspect political interests behind the export-oriented policy, according to the business journalist Burak Bekdil:
“Here Erdogan challenges the laws of the national economy, he negates the forces of the market and the law of supply and demand. His plan has only one purpose, a single goal: it is a covert election campaign. He hopes that low interest rates will fuel growth and create jobs, that the lira will stabilize next year, and that voters will be better off by election year 2023. ”
In any case, Erdogan is confident of victory in terms of the economy as well as the elections - and continues to blame foreign countries:
“Our companies will make more profits, our workers will earn more, the people will live in abundance. I believe from the bottom of my heart that in the 2023 elections our nation will not follow the economic experts and politicians who serve abroad, but will vote for a strong Turkey. ”
For now, however, it is not clear that Erdogan's course will lead to success. On the contrary, says Ali Babacan, the leader of the opposition Deva party:
“We are in one of the most serious crises in our recent history. Turkey has become the junk shop of the region: people come from neighboring countries to get the goods from the sinking ship and to buy cheaply in sinking Turkey. "
The economy misses reliability and stability
Babacan was once Turkey’s Minister of Economics and led the country’s steep recovery in the first decade of the Erdogan government. Since then he has separated from the AKP. He has nothing but contempt for the President's new economic policy:
“There is no economic war of liberation. What is there is a lira that has lost value due to bad politics and a Turkey that has lost its reputation. "
The opposition tries to use the target that Erdogan offers with his economic policy, but the leading opposition alliance has so far not got beyond a head-to-head race with the government. Despite cheap labor costs, there is no applause for the new economic policy on the employers' side either. When the finance minister recently met with representatives from leading companies and business associations to explain the new policy, business leaders had many questions, as journalist Murat Yetkin reports:
“What the business representatives miss is stability and predictability. They say: 'We just can't foresee what the government and President Erdogan will do next.' Some half-baked measures are announced and then called off again. Incentives of some kind are created, and no sooner have you adjusted and planned for them than they are abolished again. Investing or planning under these conditions is simply impossible. "
The business representatives also inquired about the sales market for the new export policy, reports Yetkin, citing participants at the meeting. The government's response: A comprehensive rapprochement with the European Union is planned and an expansion of trade with the EU - i.e. in those countries that Ankara publicly accuses of wanting to ruin Turkey. No wonder the meeting with the business leaders took place behind closed doors, says Yetkin:
“Will Erdogan now step up to the lectern and say it publicly? 'We vilified the foreign powers, but actually we want their trust and cooperation?' No, he doesn't say that, he continues to play marching music and slams the foreign powers on because it's so nice and simple: it's not us to blame for the crisis, it's the foreign powers' fault. "
Erdogan apparently plays for time with his marching music. By assigning the blame to other countries, he hopes to be able to divert public displeasure away from the government at least until his policies take effect and living conditions improve. The big question is whether it can and will take effect. On the one hand, Turkish exports are already reaching record levels, with economic growth exceeding seven percent. On the other hand, experts doubt that the fundamental problems of the Turkish economy can be solved with Erdogan's capricious policies, so also business journalist Burak Bekdil:
“Per capita income has been in free fall for the seventh year in a row, from $ twelve and a half thousand in 2012 to less than $ 8,000 this year. That is the price for the increasing international isolation of Turkey and the mismanagement of the economy. Turkey's economic problems are not of a temporary nature, but of a fundamental nature. "
Those who are right here will prove themselves, because Turkey is on a new economic course with no return. The Turks would simply have to trust Erdogan, the finance minister recently told the HaberTürk newspaper: “Either we all win, or we all go under.”
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- deutschlandfunk/ Article translation: Geo-strategic