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The Turkish economy’s War of Independence

December 10, 2021 at 9:26 am

Turkish lira banknotes [OZAN KOSE/AFP via Getty Images]

While Turkish President Recep Tayyip Erdogan has been telling his people that he is leading them towards growth, creating more jobs and increasing exports, we see the continuous freefall of the country’s currency; price hikes and rising inflation.

The Turkish Lira has lost more than 40 per cent of its value against the US dollar this year. Inflation rose to a record three-year high and prices skyrocketed 40-50 per cent.

“It’s like a horror film,” Enver Erkan, an analyst at the Istanbul-based Terra Investment, told the Financial Times. He said he could not predict how much worse the economy could get due to the connection of this issue to policymakers in the country.

In fact, the economic situation in Turkey has been unstable and it has been making the headlines around the globe. Mass media, analysts and sometimes officials around the world have argued that Turkey is heading to bankruptcy and could leave the G20 soon, but Erdogan has a different view and is going ahead with his economic policies.

After a cabinet meeting on 22 November, Erdogan told reporters: “We see the games being played on the exchange rate and interest rates. We came out of every struggle we entered honourably by taking a strong stance. With the help of Allah and the support of our nation, we will emerge from this economic war of independence with victory.”

Erdogan accuses foreign powers and certain international monetary institutions, along with regional and local bodies, of forcing an economic war on Turkey a punishment for its political stances, and to stop it becoming an economically independent state.

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Erdogan believes that being indebted to super powers means being unable to make independent decisions. Super powers, he says, work hard to maintain their tight grip over the economies of the developing countries, keeping their people poor and their ruling regimes plunged in debt in order to continue controlling the political arena.

“I reject policies that will contract our country, weaken it, condemn our people to unemployment, hunger and poverty,” Erdogan said in defence of his actions. However, his political opponents and some economists disagree with him, claiming he is leading the country to the unknown, citing the sharp devaluation of the Turkish Lira, price rises and a hike in inflation rates.

Prominent Turkish businessman, economist and analyst Yusuf Katipoglu told me that the situation on the ground is different, citing statistics showing, for example, that the GDP growth rate set an unprecedented record growth in the second quarter of 2021 and is expected to end the year showing an increase of 11 per cent.

Meanwhile, Abdul Hafez Al-Sawi, an Egyptian economic expert, described what is happening in Turkey as “bizarre” and “has no scientific explanation.” Regarding the depreciation of the Turkish Lira, he said: “It is a speculation war.” He believes the the opposition in the country and powers which are angry with Erdogan due to his geopolitical activities are causing the drop.

Turkish President Recep Tayyip Erdogan speaks during civil society meetings in Siirt, Turkey on 4 December 2021. [Mustafa Kamacı - Anadolu Agency]

Turkish President Recep Tayyip Erdogan speaks during civil society meetings in Siirt, Turkey on 4 December 2021. [Mustafa Kamacı – Anadolu Agency]

“The war on the Turkish Lira is manipulated internally, regionally and internationally,” Al-Sawi said, stressing that the reduction of the interest rate does not necessarily lead to the devaluation of the local currency or increase in inflation. “It is a bloodless war.”

He cited remarks made by Christine Lagarde, president of the European Central Bank and former managing director of the IMF, who said price hikes and inflation, which has been affecting most countries around the globe, including the US and Europe, are a result of the COVID-19 pandemic. According to Bloomberg, she described the current spike in prices as temporary. “A hump eventually declines, and this is what we project for 2022. We believe that we are now at the high level of the hump and that it will start declining,” she said.

One investor, who spoke on condition of anonymity, told me: “Only investors who have physical assets like real estates are affected because the value of their assets automatically declined. However, others, whose businesses are production-oriented, started to achieve better revenues because of the decline of labour costs and interests on their loans.”

READ: Local manufacturing is important for currency management in Turkey 

“When the labour costs decline, the production costs decline,” he explained, adding that this means the high-quality Turkish products become competitive compared with imported products.

A similar war was waged on Turkey in 2018, when the US put in place measures to stifle the country’s economy as a result of its decision to purchase Russia’s S-400 missile defence system, and its detention of an American pastor who Ankara said was spying.

“I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!”

— Donald J. Trump (@realDonaldTrump) August 10, 2018

Erdogan responded: “As we didn’t surrender to the coup makers, and stood against the tanks with our bare hands, we will not surrender to the economic hit men.”

Analysts at Goldman Sachs told the Financial Times: “We think the pressures [on the Turkish Lira] will only subside after a change in policy,” highlighting that this is a propaganda war.

John M Perkins, the author of ‘Confessions of an Economic Hit Man’, said he was hired by the American government to carry out its agenda. He said his job was meeting heads of regimes and telling them: “I just want you to know that in this hand I have a couple of hundred million dollars for you and your family if you play the game our way… And in this hand I have a gun with a bullet in case you decide to keep your campaign promises.”

Erdogan says he recognises there is an economic war being waged against his country. He says he knows what will happen and knows what he will do and what the outcomes are in the short, mid and long-term. The main obstacle currently facing Turkey is the high import bill as Turkey imports most of its energy and a great deal of raw materials.

In order to solve this problem, Turkey has already started to use its wealth to produce raw materials, and it is working hard to produce its own energy using its newly discovered oil and gas reserves, mainly in the Black Sea. When these come into the market, Turkey will achieve an independent economy through which is will be able to adopt the policies it desires without being affected by external factors.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.