Turkish lira imperils Erdogan's rule

A currency crisis is shaking Turkey’s economy, imperiling President Recep Tayyip Erdogan’s nearly two-decade-long grip on power and upending living standards in a country that had enjoyed years of growth.

The Turkish lira hit a record low against the dollar on Thursday after the Central Bank cut a key rate by one percentage point. The currency has lost more than a third of its value since March and is the worst-performing major emerging market currency this year so far.

Turkey's economic travails are not just inflicted by the exacting toll of the pandemic but are also attributable to political interventions and the unorthodox economic beliefs of the country's most powerful man, President Recep Tayyip Erdogan.

Erdogan believes in lowering the cost of borrowing money to boost growth. A cheap currency would theoretically stimulate growth, however economists disagree and the consequences of this approach are playing out in Turkey at present time.

Inflation is causing price increases which is resulting in higher costs for imports, fuel and basic household goods, all of which are suddenly much more expensive. Turkey's industries also rely on a great array of imported raw materials.

Since 2019, Erdogan has appointed four central bank governors and fired bankers who resisted his entreaties to reduce interest rates. Since September, Turkey's central bank has raised interest rates by 3%.

Foreign investors have been heading for the hills, dumping seemingly suddenly worthless assets while Turkish people have been converting their life savings into hard currencies such as the US dollar and Euro as well as gold.

Erdogan's early years in office were marked by a strong economic performance. Now however, he continues to insist that the economy is robust and that Turkey will come on top after the pandemic winds down.