When I rented my first Istanbul apartment, in mid-2013, the Turkish economy was humming and 2 lira were equal to 1 US dollar. A year later, the lira had roughly the same value and, to me, the recently arrived expatriate, Turkey’s currency seemed relatively stable and unworthy of concern – which is precisely when the bottom began to fall out.
By late summer 2015, the lira sat at three per dollar, spurring my landlord to increase my rent by about one third. By early 2017, the lira had fallen to nearly four per dollar and some Turkey watchers wondered if that might be the end of the decline.
Instead, the lira crossed the five-versus-the dollar threshold in mid-2018 and hit six a year later. Then the pandemic arrived: inflation and unemployment have been persistently high over the past 20 months as some 1.5 million Turkish citizens have been driven into poverty. Last week, after a midnight decree from President Recep Tayyip Erdogan dismissed three central bank officials, the lira fell to nine versus the dollar and continued to drop.
The lira has consistently ranked among the worst-performing currencies in recent years and may be headed for 10 versus the dollar by year’s end. Turkish citizens’ rush to trade their liras for dollars and euros last week spurred the government to mandate the use of identity cards for such transactions, presumably in an effort to slow lira departures.
As Turkey has remained mired in economic crisis, I have in this column regularly peeked under the hood: detailing the current Turkish government’s unorthodox view of the relationship between inflation and interest rates; the musical chairs atop the central bank; the government urging citizens to shop on a full stomach; a top imam reminding Istanbul’s residents that Allah will reward those who survive fear and hunger; debt piling up for farmers and small businesses, and more.
In August, I argued that the central bank governor faced a choice: either cut interest rates or lose his job. He made the cut last month and remains in his post, but inflation has ticked up to a two-and-a-half-year high. From 2003 to 2018, Turkey reduced its poverty rate by 77 per cent. But the rate has since increased nearly 30 per cent. Even as Turkey’s economy registered growth in 2020 and early 2021, the gap between the haves and have-nots widened.
Today, many Turks are struggling to pay for essentials that cost three-to-four times more than they did just a handful of years ago. On Friday, Omer Koc, the chairman of Koc Holdings, Turkey’s largest conglomerate, acknowledged the need for reforms. “It is extraordinarily saddening to see how much the rising pressure from inflation is exhausting our citizens,” he said at a company event.
There is much to exhaust them these days. As the lira plummeted last week, the price of oil crossed the $80-per-barrel threshold for the first time in three years. Goldman Sachs expects the price to remain high for an extended period, which is particularly problematic for Turkey as it produces very little of its own energy.
The government has thus far kept fuel prices relatively stable by eliminating taxes. “But as of this week it seems they’ve run out of tax to forego,” analyst Can Okar said on Twitter, detailing how the government is between the proverbial rock and a hard place. “Now they can either subsidise and make the black hole in public finances explode. Or price hikes.”