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Saturday, January 29, 2022

Erdogan blames lira’s decline on ‘money tycoons’

Turkish President Recep Tayyip Erdogan has blamed the lira’s sharp decline on “money tycoons” who attack the Turkish economy and has vowed to seek lower borrowing costs to boost growth, in a bid to restore his plummeting popularity ahead of the 2023 elections.

Following Erdogan’s statements, the Turkish currency fell by about 4.5%, and it was traded at a price of 12.4766 liras to the dollar, at 5:51 pm, yesterday, Friday. Thus, the currency lost a fifth of its value in the past two weeks only.

Speaking to his supporters in the western province of Izmir on Friday, Erdogan stressed more than once the importance of the recently unveiled policy, which prioritizes lowering interest rates in order to boost growth and create jobs.

The Turkish president said, in televised comments, that the fall of the lira this week has no economic basis, and is the result of financial sabotage. He added that these attacks were orchestrated by “global political and financial tycoons” and their domestic clients, who want Turkey to keep interest rates high.

Erdogan added: “We will not abandon our new economic program, no matter what they do.” “They are trying to orchestrate a dark scenario by exploiting the levels of foreign exchange rates,” he added. A day earlier, the National Security Council, which is led by the country’s president, said that challenges to policy transformation were one of the threats facing the state, along with terrorist activities.

old tactics
Erdogan is espousing an old-fashioned ideology that does not get much support, saying that high-interest rates support inflation, rather than curb it. His determination to lower borrowing costs as inflation hits 20% has pushed Turkey into a new challenge, with many analysts questioning whether the fallout will affect Erdogan’s grip on power.

The rapid depreciation of the currency increases the cost of goods for citizens, with the hardest hit by the pro-Erdogan labor base, and poses risks to the banking sector.

Yet Erdogan maintains an emotional defense of his latest approach, despite the immediate financial turmoil it has caused. This reminds us of the general argument that Berat Albayrak, Erdoğan’s former finance minister and son-in-law, continued to make after the currency crisis erupted in 2018.

At the time, Erdogan and Albayrak blamed foreign powers for trying to undermine the Turkish economy, by orchestrating bids at the expense of the lira, and restricted banks from conducting foreign-currency swaps with their counterparts abroad, which would have allowed banks to subsidize the currency.

consecutive defeats
Over the next two years, policymakers oversaw foreign exchange-rate intervention, which ultimately – in Erdogan’s own words – depleted the $165 billion in support of the lira.

In the face of pessimistic opinion polls, Erdogan has set out to renew the push for job creation by forcing the central bank to cut interest rates. The central bank with a regulatory role has cut the benchmark by a total of 4 percentage points, since last September.

The 2023 elections will be the first since Erdogan’s ruling party suffered shocking defeats in municipal elections two years ago, when his party lost major election arenas, including Istanbul and the capital, Ankara, to the opposition for the first time in a quarter of a century.

Recent opinion polls show that support for him has now fallen further, with nearly two-thirds of the population seeing no hope of economic improvement over the next year.

“We did not think about this new economic policy in the morning, and we decided to activate it in the evening.. We have been preparing for it for 19 years,” Erdogan said, promising the companies and workers that things would improve.

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