With Turkey ‘s economy sinking and inflation soaring, Turkish President Recep Tayyip Erdoğan is expected to face a difficult economic period until the next presidential election in about 18 months time.
Erdoğan lamented inflation, but also welcomed growth, which he said reached 7.4% in the third quarter of the year, with exports rising to $225 billion.
For Professor Panagiotis Petrakis from the Department of Economics at the University of Athens, the exports of Turkey is “really great.”
However, he added that “exports are not the whole economy, it is only one area, and not all citizens work in factories that export products.”
But why is the Turkish economy in turmoil?
“The recent measures taken by Erdoğan had the sole purpose of stopping the dollarisation of Turkish deposits, and due to the specific way in which they were implemented, he succeeded,” said the professor.
“But this measure that he had taken to compensate the holders of deposits from the change of the exchange rate, obviously leaves out two things. First, the public deficit, which will jump from 40% to 50% of GDP, and second the inflation,” Petrakis explained.
In addition, the doubling of the salaries implemented by the Turkish President, as the professor states, “has created a wave of inflation”.
“I have said for a long time that when you increase wages and double the minimum wage, then companies will increase prices. I was predicting an explosion of inflation and then it really happened,” he stressed.
The problem of inflation is particularly important, as Petrakis points out, as the devaluation of the currency favours the holders of funds abroad who can buy the country’s assets cheaply.
“This is an economic problem which obviously favours capital holders abroad because there is a very significant devaluation so they buy very cheaply the assets that exist in Turkey,” the professor said.
“Secondly, you are inflating inflation, resulting in an internal economic instability,” he continued, adding that Erdoğan was wrong to follow this economic policy.
“I do not think that all the people who do not follow these methods are wrong and that Erdoğan has found the ‘source of good’, ‘the magic water.’ I think that yes, the export sector is favoured, but the citizens will be in a much worse position,” Petrakis said.
As for how Turkey’s economic course will continue in 2022 and whether Erdoğan will eventually be forced to turn to the IMF, Petrakis estimated that he could avoid it “at any time, by immediately raising interest rates.”
“Of course, I’m not sure he can make up for it after his pay rise. What will he do now? Will he take them back?” Petrakis questioned.
“I think that in the next period (the Turkish economy) will have a good GDP growth, it will have a very good increase in exports, inflation will increase, the Turks will be further impoverished and no new funds will go from abroad.
“Now, if he manages to go to the elections somewhat tolerated, I do not know,” concluded Petrakis.