All over the world people are experiencing the devaluation of their money. Prices are rising, and for the same products more has to be paid than before.
All over the world people are experiencing the devaluation of their money. Prices are rising, and for the same products more has to be paid than before. The enormous increase in inflation of the lira has lasted for a long time. The stately statistics institute TÜIK puts the inflation rate at 80%, while the independent inflation research institute ENAG estimates it at 176.04%.
In order to curb demonetization economists advise raising the key interest rate. But President Erdoğan interprets high interest rates as fraud and exploitation and does not follow the experts’ advice: the fall of the lira continues while the president regularly changes the heads of the central bank because they do not deliver what he envisions - a miracle. The minimum wage has already been raised three times, from 3000 to 4250 (December 2021) to 5500 TL (July 2022) a month. However, this symptom control does not curb inflation either. Now, at the end of 2022, one euro is worth only 18 lira. This is clearly felt by the population. Rising food and energy prices are forcing them to cut back. The first soup kitchen has opened in Istanbul, where even middle class people can be met. A simit, the traditional cheap sesame curl to go, which is sold on every street corner, now costs twice as much; last year it was 2.50 liras, now it is five liras.
But why is Turkey experiencing this extreme inflation? The Turkish economy has been in turbulence for a long time. In addition to political events and the sanctions by the US, due to the S-400 missile defense system which Turkey purchased from Russia, foreign currency loans are also contributing to economic instability. In addition, a national debt was accumulated by the ruling AKP party by financing construction projects and infrastructure development over the last 20 years – the often negative environmental and social consequences of those mostly being ignored.
However, if the national currency loses value, as it has long been the case with the lira, repaying debts in foreign currency becomes expensive. (Private) investors also contributed a large part to Turkey's immense construction projects. But Erdogan's economic policies are making investment unattractive. For example, the US rating agency Fitch classifies Turkey's credit rating as negative and speculative.
Moreover, Turkey's food and energy supply is heavily dependent on imports: 70% of its wheat demand and a large part of its fossil fuels are covered by Russian imports. In turn, Turkey cooperates with Ukraine in the economic-military sphere and has delivered combat drones to Ukraine. Consequently, the Russian war of aggression on Ukraine (also) has an impact on the Turkish economy.
Besides its dependence on these two countries, Turkey is also a member of NATO and is trying to strengthen its position within the alliance by mediating in the current conflict. Turning away from either the West or Russia is no option. Sanctions, regardless of which side, would exacerbate the already precarious economic situation, which the government whose poll ratings have dropped significantly tries to prevent because of the elections in the first half of 2023.