The economic policy of a president Turkey Recep Tayyip Erdogan Led his country to a new low on Friday, when inflation in May reached an annual rate of 73.5% – the highest since 1998. The last time Ankara, accustomed to high but not-so-high inflation rates, reached such an inflation rate – the Turkish president now generally served as mayor of Istanbul .
Although the policy of the Turkish president and the professionals he has placed in key positions is based on an insistence not to raise the interest rate, which even before 2022 remains at 14%, has a direct impact on the inflation rate. But there is another key factor that is influencing, in which Erdogan and even a senior Ankara official are not really to blame. And this, the Russian invasion of Ukraine.
● Turkey in the heart of the storm: What it looks like to be up close to life in a country suffering from galloping inflation
● In Turkey you will eat your kebab in the morning because in the evening you will already pay more
● Buy assets, hide gold and choose crypto: Turks escape the worn-out currency
Energy dependence in Russia
Turkey is a country without energy independence, and therefore any world-class energy crisis is hurting it fatally. While the annual inflation rate in Turkey rose in one month from about 70% to 73.5% in May, energy prices rose by 118% and 121.1%, respectively. Therefore, it is not surprising that last week the national energy company Butash announced a significant increase in tariffs: 30% increase in prices for homes and 10% -40% for industry in natural gas prices, and 15% -25% in electricity prices.
In recent months, the issue of warming relations between Turkey and Israel has made headlines, amid Ankara’s urgent need for natural gas. Data released this week, on Turkey’s natural gas sources in March (i.e., after Russia’s invasion of Ukraine), well reflect Turkey’s dependence on Russia. Of the 6.21 BCM (billion cubic meters) of natural gas that Turkey imported in March, 2.75 BCM were from Russia (44.2%). At the same time, 897 MCM (million cubic meters) came from the United States and 761 MCM from neighboring Azerbaijan.
The issue of energy is of course very significant, but the Turkish citizen feels the rising prices on a daily level in food prices. This is also well reflected in the data from the Turkish Bureau of Statistics, which found that food prices have risen by 91.63% in the past year. When the elections in Turkey take place in exactly one year, on June 18, 2023, a survey by the Metropol Institute this week found that the gap between Erdogan’s coalition bloc and the opposition bloc stands at 1.4%. Although the floating vote rate is still high, at 8%, the Turkish president is certainly concerned about the situation.
Erdogan defeated inflation in the first round
Erdogan well remembers that the main reason that led the Justice and Development Party (AKP) and him to the top of Turkish politics was inflation. In 1995, a year after he was elected mayor of Istanbul, Turkey reached 130% hyperinflation. Until 2002, when Erdogan was elected Prime Minister of Turkey, although Turkish and international political and economic attempts were made to find solutions to inflation – all but the current Turkish president failed.
He dealt well with deficits, debts, the duration of foreign investment, dealt with the eroding pound, and separated his political needs – such as the confrontations with Israel and the criticism leveled against Jerusalem – with economic needs, which was of course reflected in the impressive trade between the two countries.
In terms of inflation, for example, Turkey “fell” – in the positive sense of the word – from 44.96% in 2002 to 8.6% as early as 2004, a year after Erdogan entered the Prime Minister’s Office in Ankara. While inflation in Turkey ranges from 6% to about 10% by 2016, rates that other countries would not allow themselves to live with in peace – but in Ankara, which has become accustomed to much higher levels, this is a fairly reasonable situation.
Still, the same Erdogan who flourished at the electoral level thanks to his economic policies, is now in an image crisis for exactly the same reasons. Since 2016, Erdogan has replaced four central bank governors and three finance ministers to suit his philosophy – one that is actually destroying Turkey economically. And when he has no counselor to tell him “Sir, maybe it’s better to act differently?” Those who suffer are the citizens.
In the last six months, the trend of changing positions has also reached the Turkish Bureau of Statistics. It started at the end of January with the resignation of the head of the CBS, Sait Ardal Dincher, continued on May 20 with the departure of Jam Bash, head of the inflation department who is tired of the pressure placed on him, and just last week: the head of the consumer prices department, Mustafa Taka , Was replaced by Bilda Iaz, according to the Bloomberg agency. His departure occurred even before the latest inflation data were published.
“I can not store meat,” Tahir Goljiman, owner of a restaurant in the capital, Ankara, told Bloomberg. “I can not change the price of the doner (Turkish shawarma; DSA) every day.” Goljiman notes that he feels the price hikes well even in vegetable prices. “I am not happy with Erdogan but I will still vote for him,” the restaurant owner said, “I do not recognize any other leader who can rescue us from the situation.”
“Some citizens do think that there is no other leader who can take Turkey out of the mess,” Betsy Penso, a Turkish-Israeli citizen, told the Globes. “My friends who live outside of Turkey are interested in voting, and so am I. If I am in Israel at the time of the vote, then I will also vote at the embassy, the main thing is to exercise my right to vote.” According to Panso, all Turkish citizens feel the changes in prices. “Rising supermarkets are rising on a daily basis,” she explains. “There are those who can no longer even buy milk. It is clear to everyone that if there is no substantial change then the situation will worsen, and many withdraw the money from the banks.”
The stock market makes a profit, but foreign investors leave
Many Turks withdraw their money from the banks because they understand that day by day the value of the currency is eroding. On Friday, for example, before the opening of trading, the dollar stood at around 16.48 and crossed the 16.5 threshold soon after the inflation announcement. At the same time, the euro exchange rate rose to 17.8.
The Istanbul Stock Exchange also reacted with price declines, with red screens well expressing the uncertainty. However, as part of the trend of withdrawing Turkish lira from banks for conversions to gold, crypto and of course foreign exchange, the Istanbul Stock Exchange actually benefited because in the past year many have invested their money in stocks and indices in Istanbul. It rose by 37%, while the BIST 30 index rose by 39%. “By almost 40%.
However, even in the Turkish stock market, the economic policy implications of Erdogan and his people on the image of the Turkish economy are reflected. It is possible that if the non-traditional economic approach had borne fruit then foreign investors would have seen potential in Turkey, but the colossal failure – which is known to be getting worse – is causing many foreign investors to look for alternative avenues. Since the beginning of the year, foreign investors have sold no less than $ 2.2 billion net of shares, bringing foreign ownership of Turkish shares to a low of about 35%.
Given Erdogan’s interest rate philosophy, which has led Turkey from an annual inflation rate of 11.39% in May last year to 73.5% now, the trend of foreign investors moving away and the increase in Turkish citizens’ investment in the Istanbul Stock Exchange is expected to intensify – until the June 20 election.
“The economic crisis is having a huge impact on the popularity of Erdogan and the Justice and Development Party, and this is also reflected in the polls,” O’Leary, a doctoral student at the University of California, Irvine and a commentator for Turkish news agencies on Turkish foreign affairs, said. Turkish heritage). Tuna notes that despite the rise in prices of all products, which Turkish citizens feel well, “25% -30% will vote for Erdogan in any situation. The reason is that the voter base of the Justice and Development Party is very large relative to other parties. They regularly lose votes. The ‘floating’ votes may be the ones that will tip the scales against Erdogan, whether they are secular or conservative. The big question right now politically is around which opposition figure will unite. If it is, for example, a mayor “Istanbul Akram Imamolo – he may win. On the other hand, if it is the leader of the opposition and the Republican People’s Party (CHP) today, Kamal Kilicdraulo, he is likely to lose.”