Poor lira: why Erdogan won the elections despite 100% inflation

Recep Erdogan won – the Turkish lira lost: after the news of his re-election, the rate of the national currency fell sharply. And whether there will be more: experts predict that the lira will collapse by another 40 percent by the end of this year. We asked Alexey Obraztsov, an expert from the HSE Center for Asian and African Studies, to explain the phenomenon of a weak currency under a strong president.

– Aleksey Vasilievich, why does Turkey have an unstable economy with such a stable political system?

– Well, the political system is stable on the upper floors. The lower floors are more prone to chatter, so there is no need to talk about the strength of the economic foundations. What are the reasons? If you noticed, both presidential candidates before the last round of elections paid a lot of attention to the same issue – the presence of more than a million Syrian refugees in the country.

They need to be placed, they need to be supported, they need to be provided with humanitarian and financial assistance, and so on and so forth. Both Erdogan and Kılıçdaroğlu have put the problem of refugees at the forefront of their programs. Kılıçdaroğlu said that in general he would send everyone back home within a week. Erdogan was more cautious, but he also said that such an influx of refugees is a heavy burden for Turkey. And it is true. This is one of the problems that drown the Turkish lira.

There are other problems as well. For example, the unsettled relationship with foreign markets. First of all – with the European ones. There are also certain limitations in connection with the position that Turkey occupies today – both on the Ukrainian problem and on relations with Russia.

– The monstrous earthquake that happened in February also certainly dealt a serious blow to the country’s economy.

– Yes, sure. Although this natural disaster for Turkey was not something incredible: the Anatolian plate has been shaking since the time of not only the sultans, but also the Hittites. Earthquakes always happen there, these are expected things. But of course, it would not hurt to have a more dynamic and qualified early warning service for Turkey.

The fact that the lira fell after the elections is also understandable. Even during the election campaign, Erdogan said: there was information that partners, primarily American ones, are playing, so to speak, against the incumbent president, supporting the opposition. Which is most likely true. Kılıçdaroglu is a more pro-American, pro-European politician than Recep Tayyip Erdogan.

But pay attention: what did Erdogan start with, speaking after the announcement of the election results to those gathered in front of the presidential palace in Ankara? One of his first theses: that’s it, I won, and now we are creating a gas hub, on which we will make excellent money. And this is generally true. They really make money. There are also a number of other projects, perhaps not as large-scale, but also very promising.

In principle, Turkey has a good economic potential and good transit prospects, stemming from a very favorable geographical position. I think the country will cope with its current problems: within a year or a year and a half, the lira will stabilize, and it will go up.

– You named the objective reasons for the financial turmoil. But there is an opinion that such a serious subjective factor as Erdogan’s rather original financial policy intervenes here: the fight against inflation by lowering rates.

– Yes, Erdogan is a peculiar person. Some of his steps may raise questions. But the Turkish leadership has a huge number of consultants. The Turks are ordering unthinkable studies to stabilize the national currency from European and American institutions and funds. So if the Turkish authorities make such a decision, then 90 percent of it is a decision agreed with international consulting firms and monitoring services. Maybe there is something so clever about it. Maybe there is some incredible Turkish plan behind this. But, to be honest, this also surprises me – the game with the central bank rate.

– Inflation in Turkey, they say, is absolutely incredible.

– The official annual inflation is about 80 percent. But the Turkish opposition says that in fact it is almost 200-300 percent. They are somewhat bent, of course, but what is over 100 is for sure. In Turkey, even such a funny term as “lunch” or “kitchen” inflation has appeared: newspapers daily publish the cost of a lunch set of products, showing how much it has risen in price compared to yesterday, the day before yesterday. I think if it were not for such inflation, Erdogan would have won in the first round without any talk.

– It is surprising that with such a frenzied rise in prices, he managed to be re-elected at all. Are wages and social benefits growing even faster?

– Salaries in the public sector are growing really fast. Benefits, social payments – also quite quickly. In addition, there is a wide network of charitable organizations: lunches, dinners for the needy … But the main secret of Erdogan’s victory is different. Turks are a political nation. Like people in Russia, they are ready to experience serious inconvenience for some time in order to increase the authority of the country, its role, and influence on international processes. And Erdogan successfully played on this string of the Turkish soul. Many Turks really like Erdogan’s fairly independent foreign policy.