By Ayushi Ghosh | Edited by Nisha Gokhale
Turkey’s economic history has been nearly as turbulent as its political one. With each regime and social class having differing ideas about how to best approach economic policy in the nation, the Turkish Lira is no stranger to volatility. In the more recent years, however, the Lira has witnessed perhaps the most instability in its history. With the central bank’s attempt to revitalize the economy in the most theoretically contradictory manner ever heard of, President Recep Tayyip Erdogan’s regime has been under fire for its unconventional approach to economic acceleration. His experimental economic model has been hotly debated in political and economic spheres in recent years. Characterized by a series of cuts in the interest rate and the subsequent freefall of the Lira, his policies have been a source of great frustration among the Turkish citizens.
Erdogan has been a firm proponent of the idea that high interest rates are the “mother and father of all evil”. Contrary to the opinions of three former central bank chiefs, his ideas stem from the belief that Turkey is in dire need of freeing itself from its heavy reliance on foreign capital, as well as that decreasing interest rates will help reduce the rising consumer prices. In fact, all three chiefs were later dismissed by Erdogan himself for trying to boost the value of the Lira by raising interest rates. In his attempt to appease the masses by declaring an ‘economic war of independence’, he has instead created a situation where the common citizen unable to afford enough groceries for a day’s meal, those on pension are struggling to get by, businesses are unable to repay debts due to the Lira’s plummeting value and the youth has taken to the streets in protest.
Though the decreasing of interest rates is usually recommended when trying to revitalize an economy, Turkey comes with the added issue of having one of the largest current account deficits in the world. It relies primarily on foreign investments to bridge the gap between imports and exports. However, as the uncertainty about the value of the Lira increases due to the fluctuations in its supply from the central bank, investors become less keen to purchase the Lira required to invest in the country’s economy, thereby causing the demand for the Turkish Lira to fall rapidly and Turkey to spiral further into debt. The common man has also borne the brunt of the Lira’s volatility in the form of exorbitantly high living expenses (which have gone up by 50% this year).
Over the past month, the Lira has been valued between 16.6 TRY to 13.7 TRY per USD, with the lowest being around 10.91 TRY per USD. The distrust in the Lira has grown to the extent that the Turkish people have turned to using more stable measures of exchange such as gold and the US dollar, whereas gold sellers have begun to sell their gold in smaller and smaller increments. As the frantic Turk rushes to convert all his savings to USD, the government has attempted to stabilize the exchange rate by introducing schemes wherein those who refrain from withdrawing their savings in Lira for three months will not only have their money protected by the government, but also be compensated in case the lira continues to decline. The central bank’s foreign currency reserves are also witnessing a 20-year-low with an estimated value of only about $8.9 bn. Turkey’s stock market Borsa had to pause trading twice in order to prevent further losses.
As the common man maintains a pessimistic attitude towards the lira, the government has attempted to appease the frightened citizens by increasing the minimum wage by 50.4% starting January 2020, as well as abolish income and stamp tax on minimum wage. Turkey’s immigration rates have also observed a monumental 170.97% increase in the previous year. Not only has the nation seen a rise in physical migration, but the global pandemic has also widened the horizons for many Turks by enhancing the scope for working from home leading to what many have called a ‘virtual brain drain’- wherein young turks, while living in turkey, earn in US dollars by working for overseas companies and spend in lira.
The pessimistic attitudes towards the lira show no signs of subsiding even as the lira shows signs of relative stability so far into 2022. Moreover, along with the lira’s value, Erdogan’s popularity has also plummeted, as people remain skeptical of the future of the nation in his hands.
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