Currency hits new low of 9.97 against the dollar as popular support for Erdoğan’s government wanes
Last modified on Thu 11 Nov 2021 11.53 EST
Turkey’s currency is slumping to record lows against the US dollar, deepening the poverty felt by households across the country and eroding popular support for Recep Tayyip Erdoğan’s government.
The lira fell 1% to a new low of 9.97 against the greenback on Thursday because of higher-than-expected US inflation data, settling at around 9.93 when US markets opened. The currency has lost a staggering 25% of its value so far this year after a series of deep interest rate cuts by Turkey’s central bank, despite three years of double-digit inflation.
Turkey’s insistence on slashing the benchmark interest rate, even as other central banks around the world use higher borrowing costs to try and put a brake on inflation, reflects Erdoğan’s belief that high interest rates, which he has termed “the mother and father of all evil”, fuel higher inflation.
Contrary to the view of mainstream economists, since the lira began to nosedive in 2018 the president has placed an emphasis on keeping Turkey’s economy growing with the help of cheaper borrowing costs. In a sign of his now near-total control of the country’s institutions, three central bank governors have been sacked over disagreements about interest rate hikes in the last two years.
While the economy had a record 21.7% year-on-year growth in the second quarter of 2021, middle- and low-income households – including much of the Turkish leader’s political base – are feeling the pinch. Unemployment remains above 10%, rising to 22% for young people. Inflation hit 19.9% in October, sending the cost of food, energy and housing skyrocketing.
According to official data, the pandemic helped double the number of families living in poverty in 2019-20 to 6.63 million households. A report released this week by the pro-Kurdish opposition Peoples’ Democratic party (HDP) found that 76 people have killed themselves this year because of financial pressures.
After it came to power in 2002, Erdoğan’s Justice and Development party (AKP) raised living standards with a development boom, particularly in the construction and tourism industries, largely fuelled by foreign credit. But the lira has lost more than half its value since 2018, wiping out savings and bankrupting businesses, and once-loyal voters are deserting the party in droves. Opinion polls consistently show support for the ruling party has dropped to about 30%, which is 10% less than the 2018 general election.
The government is reportedly preparing to raise the minimum wage and subsidise energy costs, but as Turkey’s elite profit from lower borrowing costs, widening financial inequality looks set to threaten the coalition’s chances in elections scheduled for 2023.
Sinem Adar, an associate at the Centre for Applied Turkey Studies in Berlin, said: “Why do Erdoğan and the AKP willingly increase social and political costs by recklessly intervening into the central bank? One of the important factors seems to me the pressure from actors particularly in the construction sector with close ties to the AKP, that is, the so-called ‘low interest rate lobby’ that has emerged as a consequence of the party’s construction-fuelled growth model.
“As the manoeuvring space of the president and his party narrows, the pressure [to bow] also gets more intense.”
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