COLLAPSING LIRA SIGNALS THE END OF THE ROAD FOR TURKEY’S ERDOĞAN

“Whoever supports higher interest can not be on the same side with me!” were the words President Erdoğan used in his party’s annual meeting in November, reaffirming his commitment to lowering interest rates at any cost. His words portrayed not only his unconventional economic beliefs but also posed a direct threat towards the administration of the central bank, which had been reluctant in following his interest policies. However, with the lira falling like a rock, it is unclear whether Erdoğan will keep standing by his beliefs or concede to make a political U-turn, something his administration has been associated with for years.

Among all major currencies, the Turkish lira has been the worst-performing since 2018, losing up to 80% of its value in a three-year span. Turkey has also experienced one of the highest rates of inflation among leading developing economies, with its official annual inflation rate surpassing 20% this year. It is therefore confusing to many that Mr Erdoğan strongly advocates for lowering interest rates, an unconventional and practically counterintuitive policy to combat an economy in stagflation.

Erdoğan’s economic priorities are different from those set by virtually every other nation in the world. Amidst the demand recovery from the health crisis this year, Turkey is the only nation that reduced policy rates, which says a lot about the recent shift in Erdoğan’s political agenda. In his own words, Erdoğan believes that “interest rates are the culprit, inflation is the result.” In an economy that is heavily dependent on foreign financialization and one that experiences high currency volatility and interest rates, it is unclear how Erdoğan, a self-claimed economist, reached this conclusion. Nonetheless, what is clear is that pursuing this belief has resulted in a massive economic downturn which, if not changed, will certainly lead to catastrophic consequences.

What is interesting about the situation is that the consequences of the president’s interest policy were not unprecedented — many in the political and financial spheres of Turkey, as well as other global players, have repeatedly raised concerns regarding the long-term sustainability of Turkey’s unconventional growth mechanics. Moreover, the Turkish people have been the direct subject of his failures, and their unrest against the government amidst witnessing their savings and income shrink is heard loud and clear. In fact, Erdoğan currently has the lowest approval rate of his 20-year-long rule, and both the presidency and parliamentary polls for the 2023 election indicate, for the first time in his political career, that he and his party are on track to get ousted from power.

Therefore, Erdoğan’s fixation with his economic policies indicates that, following his massive loss in the 2019 Mayoral Elections, he has been unclear about his political intentions and insecure about his future. In fact, for the first time, Erdoğan is resistant against calls for early elections by the opposition. For a populist figure that has legitimized all his actions based on ballot results, this is unprecedented.

Moreover, it is clear that the power of political Islam in Turkey has been diminishing significantly as the economic turmoil gets more severe. Many of Erdoğan’s supporters could care less about the religious rightness of the concept of economic interest over their declining living standards. His attempts to deviate attention from the crisis has been unsuccessful, on the contrary, scandals from his past and present have been piling up. For the first time, these scandals are receiving the attention of the people, who now call for early elections.

Consequently, it is unknown whether Erdoğan can survive the upcoming elections in 2023. More worryingly though, it is unclear if the economy and the people can endure the crisis for two more years. Solely in the first half of December 2021, the central bank of Turkey has spent more than ten billion USD of foreign reserves in an attempt to stabilize the plummeting currency, just for it to fall further once the interventions ended. The gap between official and unofficial inflation rates is staggering; both domestic and foreign investment has plummeted, and there are instances of people waiting in lines to receive food supplies. It is uncertain how Erdoğan plans to regain his popularity. However, one thing is certain: when people can’t afford their food and shelter, their political views change. And if this continues to be the case for Turks, the end of the road for Erdoğan is near.

- Ata Tezel