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Turkey's Economic Meltdown: 'Erdoganomics' and Spiralling Inflation

Updated: Oct 6, 2022

Turkey faces an economic meltdown as a result of Erdogan’s dismal macro-economic competency. The annual inflation rate has soared to a 20-year high of 54.4% following a crash in value of the Lira last year and has been compounded by rising commodity prices. These issues are anticipated to only worsen in the face of Russia’s invasion of the Ukraine. Turkey’s inflation crisis is a direct consequence of Erdogan’s efforts to centralise power, and therefore this article will explore how Erdogan has brought the country to the brink of economic crisis as part of his own political project to dominate Turkish politics.

Formerly an economic power on the fringe of Europe, Turkey is now enmeshed between the hyperinflation trends visible in Latin America and the cronyism of the Middle East. The central cause of this collapse has been Erdogan’s attempt to transform a modern globalised economy into an emirate-style state by imposing his personalised presidential authority on state institutions. In 2014, Turkey stood as the world’s 16th largest economy, possessing a GDP of approximately $1 trillion in 2013, with investment, entrepreneurship and growth booming. Since this peak of success, the government has faltered into economic-illiberalism and political regress, leading to the destruction of a positive investment environment and an economy that was quickly falling into pieces. According to the IMF in October 2021, Turkey’s economy now stands as the worlds 21st largest, with the nation being estimated to have lost approximately 25% of its GDP since 2013, in large part due to the shortfall in investor confidence.

Turkey’s economic crisis has been produced by Erdogan, and hence the countries policy approach has been labelled as ‘Erdoganomics’. Turkey’s president believes in outlandish economic policies that suggest lowering inflation is possible through the central bank lowering the country’s interest rates. ‘Erdoganomics’ has resulted in unpredictable and fickle economic management combined with double-digit inflation, market volatility and currency depreciation. The doctrine of ‘Erdoganomics’ remains politically and economically untenable, however, with little to no positives. One of the many signs of the resulting internal turmoil was Turkish citizens' frantic rush to convert their savings into dollars. Flight from Turkish assets has not only happened in the realm of currency, however, leaving Turkey’s economic prospects bleak.

Turkey’s economic meltdown is not a product of malicious economic policies from outside nations or conspiracies to bring about Erdogan’s downfall, which is the narrative that has been forced on the Turkish people by the government. Turkey has a severe governance problem. The crisis originates from 2017, when Erdogan attempted to dispose of the nation’s parliamentary democracy and gained a narrow victory in a referendum to form an unrivalled head of state. The move to a quasi-totalitarian presidential structure, with no genuine checks and balances has concentrated large power in Erdogan’s hands. This is harmful as Erdogan holds an ad hoc strategy towards governance and peculiar theories on the economy, which have had demonstrable impacts on living standards. Furthermore, Turkey has become a revolving-door democracy, where Erdogan controls who is appointed in the branches of government, the media and the central bank. Following the election of Erdogan in 2018, under the system mandated in the referendum, Erdogan has displayed a pattern of hiring those who share his unorthodox views. Initially, he made his son-in-law, Berat Albayrak, finance minister before shortly firing him. In March 2021, Erdogan sacked his third central bank governor in under two years, later replacing him with a loyalist newspaper columnist, who had no prior experience in finance.

Erdoganomics have therefore been proven to be economically unsound, prioritising loyalty over competence and experience when it comes to officials, while its policies are out of touch with traditional macroeconomic indicators. In December 2021 Turkish citizens witnessed their currency lose 60 percent of its value against the US dollar after Erdogan pressured the central bank to lower interest rates for four consecutive months. Prices in supermarkets change daily, urban poverty is more publicly visible and queues for subsidised bread are growing constantly in Istanbul. This is numerically visible too, with food prices climbing by 64.5% last week, and the cost of transportation jumping by 75.8%. Turkey’s economy is heavily reliant on imports to produce goods, and the rise of the lira against the dollar directly affects the rise of consumer prices, particularly food and clothing. Foreign currency debt is also especially problematic for Turkey’s private sector as companies are able to profit from holding stock of products rather than actually selling them because of the volatile nature of the lira. This exacerbates levels of income and wealth inequality that are already prevalent

Erdogan has survived attempts to stop his personal political project, yet Turkey has far from benefited from it. Recovery from a deep and prolonged economic crisis requires ulcmore than domestic direction. A sophisticated, globalised economy cannot be run if it is underpinned by conspiracy theories. For effective economic management to take place, expertise is required. Turkey’s system of centralised presidential ruling implemented by Erdogan has thrown competent economists into the shadows, and replaced them with bureaucrats who are yes-men for Erdogan’s path into economic destruction. The Turkish economy cannot wait until the 2023 elections – the nation desperately needs a return to conventional economic management and leadership.

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