ISTANBUL — Turkish President Recep Tayyip Erdoğan is waging a “war of economic liberation” — and so far the losers are his country’s citizens who have seen the cost of living rise sharply.
The value of the Turkish lira has fallen by almost 40 percent against the dollar in 2021. In the fall, the Turkish central bank’s monetary policymakers — under pressure from Erdoğan — began a policy to boost lending and stimulate growth, bringing down the key interest rate four times in four months despite concerns that doing so could bump annual inflation above 20 percent and devalue the currency.
Those fears were not unfounded. Turkey’s consumer price index rose to 21 percent annually in November, according to official data — disputed by the opposition, which accuses the authorities of not revealing the true cost of inflation — while the lira tumbled more than 30 percent in value against the dollar in just three months (hitting record lows in mid-December).
As the economic outlook worsened, Turkish consumers noted steep price hikes for food, and local media — even pro-Erdoğan titles — began writing about long lines to buy basic foods such as bread in major cities.
One construction company owner in the nation’s southeast, who asked to remain anonymous, said the government was “knowingly impoverishing the public” through its economic policies.
He said the salaries of his employees have halved in real terms when accounting for recent price increases for basic products. “When people are impoverished, eventually they will go and ask the person who made them poor to pay for it,” he said, warning that Erdoğan may struggle at an election anticipated in mid-2023.
After nearly two decades at the nation’s helm, that vote is expected to be the president’s toughest. The economic turbulence saw his job approval dip to just 39 percent, the lowest since 2015, according to a Metropoll survey in November.
Erdoğan’s plan appears to be to win that election thanks in part to an economic turnaround, part of his broader “war of economic liberation,” while reiterating his long-held stance against high interest rates, which he claims cause inflation (a view that contradicts mainstream economic theories).
He wants a new export-led economic model based on cheap credit, cheap currency and low labor costs that he says will see Turkey become a manufacturing hub modeled after China, only much closer to European markets.
Forecasters expect Turkey to log about 9 percent GDP growth this year — among the highest in the world — and an export-led economy would, in theory, boost future cash flows and create new jobs, translating into gains for businesses and, in turn, Erdoğan’s reelection prospects.
Yet rising inequality is among the many concerns shared by Anatolian manufacturers and traders.
The construction company owner in the southeast said steel prices have roughly doubled in recent months, forcing him to significantly raise prices on new apartments. As a result, he said properties are selling at a slower pace.
“If it goes like this, it will become more and more difficult for an average person, like a civil servant, to buy a house,” the company owner said.
It’s a different picture for construction material exporters. Tayfun Küçükoğlu, chair of the board of directors at the Association of Turkish Construction Material Producers, said the sector has been booming after exporting a record 60 million tons of products in 2020. More recently, he said construction material producers also broke monthly records by value, reporting $3.11 billion in export sales in September.
Küçükoğlu said he expects the trend to continue, though he noted imports would likely decline at current exchange rates.
“While fluctuations in the exchange rate will affect exports positively, they will definitely decrease the import of products whose equivalent products are in the domestic market,” Küçükoğlu said.
Depending on the sector, some companies have seen demand for their products rise since the coronavirus pandemic began.
This is the case for the food packaging industry, which saw orders explode as people increasingly opted for home delivery instead of dining out, according to one senior manager at a packaging plant in the western Aegean region.
The manager, who asked not to be named, said the price of polymers and plastics used in packaging products increased due to exchange rate fluctuations, but the added costs were offset by exports to European markets, the company’s main client base, which also purchased the products at foreign currency rates.
In addition to exports, Erdoğan has argued the Turkish lira will stabilize through increased tourism revenue, which helps inject hard cash into the economy. Yet for some businesses dependent on foreign visitors, the inability to foresee production costs due to lira volatility hurts their margins.
Recep Bektas, owner of the Evenez wine house, a small company in central Turkey’s touristic Cappadocia region, said the cost of glass bottles had tripled in recent months, while other unexpected cost increases have made it difficult for him to price new batches of wine.
“I can’t foresee what my expenses will be, which means I can’t reflect the changes in my prices,” Bektas said.
Rather than exports or tourism, the fate of Turkish manufacturers may be determined by which ones can modernize and best adapt to post-pandemic trends, said Volkan Kilic, founder of Kuantum Research, a market analysis and consulting firm based in Istanbul.
Among the Turkish sectors that “skyrocketed” in 2021, according to Kilic, were health, finance, shipping, information technology, marketing and food delivery.
“During the pandemic, we saw a lot of businesses shutting down, but we also saw a large number of new businesses opening,” Kilic said. “We believe this is the start of a transition towards digital markets.”
In the meantime, Turkish citizens have been progressively safeguarding savings by converting them to non-lira assets, with 62.2 percent of Turkish bank deposits held in foreign currencies as of December 3 — the highest since 2001.
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