Erdogan has accepted defeat in the economic realm as Turkey moves to hike the interest rates by two percentage points (8.25%-10.25%) that reversed President Recep Tayyip Erdogan’s push for lower interest rates. This move was long suggested by the economists and is expected to boost the Lira against the US Dollar.
Turkey’s economic problem is further elevated by its being part of multiple military confrontations in the region. The country has been losing its financial capital to the Islamisation of the country with investors parting ways with Ankara. With the tourism sector taking a hit and the European Union sanctions looming, it seems Turkey has isolated itself into a corner.
The leader of Turkey has de-facto control over the central bank and has been a long-standing opponent to high-interest rates. This is why even after the Lira was in a free fall, Erdogan was not ready to accept that his policy was flawed and led to record inflation rates up to 12.6%.
The fall of the economic performance of Turkey has been directly proportional to the rise of extremist Islam. As per the statistics released by Central Bank, foreign investment in the Istanbul Stock Exchange has plummeted from 32.3 US dollars to 24.4 US dollars in 2020. All this while, Erdogan did not raise interest rates even though it would have contained the inflation.
Turning towards nationalism and trying to hide economic disaster in the camouflage of Islamization and Jingoism can only go so far. Ankara is making enemies and losing allies, creating theatres of conflict, even where things could have been solved diplomatically. However, creating and sustaining are two different things. These war efforts and supporting the proxies through logistics, weapons and manpower need a lot of financial backing.
Turkey’s economy is in shambles, and the policies followed under Erdogan in the realms of diplomacy, trade and geopolitics are working in tandem with his flawed understanding of economy to throw the country into a theocratic, jingoistic abyss.
The tourism sector contributes around 12% to the Turkish economy and, with the COVID-19 pandemic, Saudi Arabia’s alerts to its citizen against travels to Turkey, and the possible European Union sanctions by the end of this year the effects on the tourism industry are exponential, making it almost non-existential.
The sources of income and contributors to the GDP have disappeared and as countries are moving away from Turkey, it is in a very difficult fix. The expenditure is at the all-time high, but the sources of income have depleted, the only source of financing the expenses is to use Forex reserves, but, that too has a limit.
With this hike of 2 percentage points in the interest rates, Erdogan has finally accepted defeat and has retreated on his policy decisions accepting the suggestions of economists. However, even after this, the investors predict that Turkey’s Lira will be one of the most unstable this year, together with Brazilian currency.
The people can only be fooled for so long and sooner or later they are bound to get the drift of where the things are heading and will punish Erdogan for the same. He has tried to hide the economic downturns and rise in inflation with rising nationalistic fervour and mixing it with Islamic jingoism. One just cannot keep his citizen empty stomach and think they will accept whatever propaganda is being fed to them.
The conversion of Hagia Sophia, picking fights with the Gulf countries for Abraham Accord, supporting Azerbaijan in a show of Muslim solidarity and acting as the carriers of the legacy of erstwhile Ottoman Empire is expensive and from the looks of it, Turkey does not have the resources to pursue this policy for long.
The decision of reversing the long-held belief of not increasing the interest rates to finally increasing it by two percentage points has a high symbolic value. It tells that Erdogan has been taught the lesson that one just cannot isolate itself with terrorists and religious fundamentalists and at the same time expect to be a bustling economy which can take care of its citizens. However, the latest decision comes too late, and the rising public fury will ensure his long-awaited demise.