Right now, Turkey’s economy is in free fall — a crisis that has been precipitated by the near collapse of its lira against the US dollar and the euro. The decline in value has been spurred by growing concerns over the general economic direction and policies adopted by the government and directed by its president, Recep Tayyip Erdogan, as well as a deepening standoff with the United States and deteriorating ties with Washington.
From a political perspective alone, the worsening relations between Ankara and Washington are not what would be normally expected between two members of Nato, and there appears to be little leeway for compromise right now between a leader determined to forge his own path for his nation, and one determined to make his nation great again — whether that leader be in either capital. But the manner and speed in which Turkey’s economy has deteriorated certainly sends warning signs that there seems to be something fundamentally amiss. For his first decade as prime minister, Turkey’s economic growth had been spectacular, held up as a prime example of an emerging economy, one that developed close ties with the neighbouring European Union, had won customs concessions from Brussels, with a lending policy that facilitated growth and spurred development.
Most recently, however, the imposition of tariffs from Washington and the threat of further sanctions in a deepening political rift, has resulted in the lira’s swift and spectacular decline. Inflation is running at 15 per cent, spurred by a currency that is becoming decreasingly debased. Normally, in mature economies with a political leadership that is responsible and responsive, the necessary course of corrective action would be to lessen the money in circulation and decrease any new supply by hiking interest rates. In Ankara, where political power has been self-centred on Erdogan, those corrective measures do not suit his personal economic management style — and the lira continues to fall as inflation increases. This cannot be sustained in the long term — the commodities that Turkey will need for its plants and factories will become too expensive. The president is loathe to veer from his path of excessive borrowing and low interest rates.
Given the events of these past weeks, few would have imagined that Turkey’s vaunted economic strength was indeed so thinly rooted and fragile. It certainly doesn’t inspire confidence now to hear Erdogan urging Turks to check under their mattress and trade their gold, euros and dollars for the lira. It will take more than that to ease this huge crisis.