Istanbul- After about 7 months have passed since the Turkish presidential and parliamentary elections, which were described as the most difficult in the history and experience of Turkish President Recep Tayyip Erdogan and his party, experts agree that the economic file was the most important file, so how does this file react during the first months after Erdogan’s victory?
In recent years, especially since late 2018, the Turkish economy has suffered from several problems, most notably the instability of the Turkish lira’s exchange rate against foreign currencies, especially the dollar, and the accompanying dramatic decline in its value.
Turkish economic researcher Ahmed Azizoglu confirms that the economic crisis has cast a shadow over the entire Turkish scene, and it is not surprising that President Recep Tayyip Erdogan was unable, for the first time in his political life, to resolve the fierce electoral battle with his rival in the first round on May 14 of last year, and what this entailed. Fighting a more fierce electoral battle in the second round on the 29th of the same month.
The economic researcher said in his interview with Al Jazeera Net, “It is true that President Erdogan was able to decide the elections in his favor, but that was part of big and serious promises to address the economic situation, especially with regard to the high inflation rates that cast a shadow over all aspects of life in Turkey, and forced the government to raise the minimum wage.” Twice in the same year in an attempt to enhance citizen capacity.”
Rate cut failed
Last month, the Turkish Central Bank announced a raise in interest rates to 40% for the sixth month of the monetary tightening cycle. This measure comes at a time when the state’s actions against inflation and to support the lira, which is witnessing a decline in value, are increasing.
Commenting on dealing with the interest rate, Azizoglu said that the Turkish president followed a different approach in previous years with regard to treating or confronting inflation, but the approach of zeroing interest rates brought him a lot of criticism, at a time when global central banks resorted to raising their interest rates to fight… Inflation The Turkish President adopted a different approach, and began defending the principle that interest is a cause and inflation is a result, contrary to what the majority of economists in Turkey call for and defend.
The same economist explained that monetary policy makers in Turkey resorted to lowering interest rates, reaching less than 10%, but inflation, as a result of additional external factors, did not decline as required and did not strengthen the lira’s exchange rate.
The economic researcher explained to Al Jazeera Net that among the reasons for what he described as hindering the effectiveness of Turkish monetary policies in reducing the interest rate are internal factors related to the structure of the Turkish economy, the most important of which is the large deficit in the trade balance, as Turkey imports more than 95% of its energy needs from abroad, as well as the dependence of Turkish industries. On imported raw materials, the deficit increased, in addition to the unhealthy situation in the economic environment.
In addition to the previous reasons – according to Azizoglu – the Russian-Ukrainian war had a major impact on the process of hindering the effectiveness of Turkish monetary policies, and the stage was characterized by a lack of confidence in the Turkish economy due to the government’s clear interference in the powers of the Central Bank, especially interest rate policy, which contributed to capital flight. Especially hot money from the Turkish market, especially in light of the US Federal Reserve raising interest rates.
How interest has jumped
Speaking to Al Jazeera Net, economic researcher Ahmed Azizoglu believes that all of the above prompted the Turkish president’s economic team to make major and sharp reviews – according to his assessment – and that the Turkish elections – the last for the president – were a strong opportunity to correct the economic path.
Azizoglu explained that the reforms mainly aim to bring stability to the exchange rate and reduce inflation, but according to the model of the new team – the Minister/Governor of the Central Bank – which has a completely different point of view than what Erdogan was adopting regarding the interest rate and inflation.
Regarding the form of the difference, the economic researcher said, “Less than 6 months ago, the reform policy began through the new team to raise interest rates in large leaps.”
Procedures and expectations
The same economic researcher stated that the new team is led by Minister of Treasury and Finance Mehmet Şimşek followed a policy of liberalizing the exchange rate, and not putting pressure on it through the tools of the Central Bank. The result was an increase in the exchange rate from the range of 18 liras to 28 liras against the dollar in a few months.
Azizoglu added, “In parallel with this, the Central Bank began raising interest rates until they reached 40% last month. These policies will be painful in the short term, but they are expected to bear fruit in the medium and long term. This requires society to have more tolerance and patience in new aspects.” “
In his interview with Al Jazeera Net, Azizoglu, the economic researcher, expected that the coming period would witness a significant decline in the volume of internal aggregate demand due to the rise in interest rates.
Regarding the researcher’s observations of the effects of recent policies, he said, “We notice a decline in real estate and car prices, and this is largely due to their owners resorting to selling them and saving their prices in banks to achieve returns greater than interest rates.”
The economic researcher went on to record his observations, “Because of the interest rate, we will witness a significant decline in borrowing in order to establish real projects, which may lead to a decline in production due to a decline in demand, and then an increase in unemployment rates, which is a problem no less dangerous than the problem of inflation, but it is inevitable.”
Azizoglu explained that the Turkish Minister of Treasury called on the owners of Turkish factories and companies to make great efforts to open foreign markets for their products in the coming period because he expects local demand to decline.
Regarding the feasibility of the policies followed in the past six months, the economic researcher said, “Policies that are compatible with the traditional economic theory to confront inflation, but they are not sufficient alone, and must be accompanied by strong measures and structural reforms.”
