Turkey’s Ongoing Economic Crisis Explained
By Floria Persis | International | May 19, 2022
Cover Illustration: Six hundred Turkish Lira banknotes. Omid Amir / Unsplash
Metro reporter Floria Persis explains the roots of the economic crisis in Turkey. The article considers both the personal opinions of Turkish students at the University of Amsterdam, as well as the future of Turkey’s economy.
In April 2022, Turkey’s official inflation rate reached a new high of nearly 70%, exacerbated by the current Russian invasion of Ukraine and COVID-19 pandemic.
HOW DID THE ECONOMIC CRISIS ARISE?
Since 2018, the value of the Turkish lira has greatly depreciated in value in comparison to the dollar, leading Turkey into a major economic crisis. The debt of the Turkish government has gone up to 453 billion dollars and the current account deficit, along with the gap between imports and exports, has gone up by 14.5 billion dollars. Turkey’s economic crisis is the result of a combination of issues, such as the steel and aluminum tariffs set by the Trump administration and the government’s inability to pay back foreign loans. While the country’s economy was booming before the crisis, this growth was financed by large foreign loans, both in the private and the public sectors. Turkey also had a low amount of savings due to inflation. When the value of the lira went down, paying back these loans became more difficult.
In an attempt to combat this issue, in November of 2018, the central bank of Turkey increased interest rates by a full percentage – the third cut since September of that year – because increasing interest rates has been shown to decrease inflation.
President Tayyip Erdogan believes the opposite, blaming a so-called ‘interest rate lobby’ that supposedly benefits from increasing the interest rate. For this reason, the country has gone through many central bank governors over the past few years, with Murat Cetinkaya (Turkey’s Central Bank governor from 2016-2019) being fired for increasing the one-week repo rate from 17.5% to 24%, (the rate at which the Central Bank lends money to commercial banks.) He was the first Central Bank governor to be fired since 1981, raising questions about the bank’s independence and scaring off foreign investors, which has caused the lira to plummet even further.
HOW HAS THE ECONOMIC CRISIS AFFECTED THE LIFE OF TURKISH CITIZENS?
The decline of the Turkish lira has affected the lives of citizens drastically with consumer prices going up by 57.4% since November 2021. The cost of fuel, food, and electricity bills, in addition to women’s sanitary products, have gone up, making them almost unaffordable for many citizens.
A Turkish student at the University of Amsterdam stated in an interview conducted with The Amsterdammer that the purchasing power of many Turkish citizens, himself included, has gone down drastically due to the crisis. He continued, stating that “going to a cafe, or eating out has become a luxury for most Turkish people”, with 48% of the population living on the minimum wage (approximately 268 euros a month). Another Turkish student (referred to as M.I.) points out that the crisis has affected citizens abroad as well. “I think when I first came to the Netherlands, the currency exchange rate was 1 euro to 7 lira or a bit more, but after some point it started to quickly skyrocket”.M.I. acknowledges that the crisis has not affected him drastically as he is able to afford most necessities, but he is not able to spend as much on leisure anymore – he relies on his parents for financial support and does not want to put too much of a strain on them.
WHAT DO CITIZENS THINK THE FUTURE HOLDS?
As for the outlook on the future, a Turkish student at the UvA believes that the biggest hope for Turkey, as of right now, would be the upcoming election. According to this student, the problem will likely worsen leading up to the election, but if the opposition party wins, things will begin to look up. Along with this student, M.I. adds that if the current people in power do not change their policies, the crisis will drag on. However, change seems unlikely since those people reap the benefits of this economic model. He also states that there reforms to the current economic system are needed, as Turkey heavily relies on construction and services related to tourism which are prone to market bubbles.
Floria Persis is a student at the University of Amsterdam. The views expressed here are not necessarily those of The Amsterdammer.
