Turks are getting poorer, lining up for subsidized bread

Threatened by a currency crisis, Turks are lining up for subsidized bread, cutting back on meat and fleeing for a better life in Europe. The Turkish lira has lost as much as 45% of its value this year, making ordinary Turks poorer. 

The pandemic-era consumer-price increases that have plagued economies across the world are supersize in Turkey, where inflation stands at more than 21%. People here are rushing to trade their shrinking wages for dollars and gold, are eating out less and are having more trouble finding imported goods, including medicine.

Turkey has one of the largest current account deficits in the world, which means that the value of its imports is much larger than the value of its exports. The country has traditionally depended on foreign investment to fund the gap between imports and exports.

But foreign investors who help fund the current account deficit generally want some degree of certainty about the exchange rate. This is because their business projections depend heavily on what the exchange rate will be in the future when they try to convert their money back to dollars.

As the Turkish central bank becomes erratic in how it regulates the supply of liras, the exchange value of the lira has become increasingly unpredictable. So, foreign investors have become reluctant to purchase liras to invest in Turkey, which in turn has led to a drop in the demand for the currency.

It is generally believed that low interest rates boost the economy and make voters happy, although some economists do raise concerns about the sustainability of such artificial debt-fueled growth.