Turkey’s currency plummets, struggling economy jeopardizes president’s re-election

On Wednesday, the value of Turkey’s currency, the lira, plummeted dropping 1.5 percent, making it a twenty percent drop this year alone and a value close to five to the dollar. The timing of this economic turbulence has proven itself to be quite inconvenient, since Turkish President Tayyip Erdogan had recently called for early elections in June 24, over a year in advance of their originally scheduled date, in order to avoid clashing with a probable economic shift for the currency.

After Wednesday’s drop, Central Bank attempted to improve the situation by increasing one of its lending rates from 13.5 percent to 16 percent. These recent shifts in Turkish economy have represented a growing alarm from Turkish investors, and also have resulted in several of the nation’s most important businesses in conflict. With this context, Erdogan’s campaign, which is to start on Thursday and was targeted on highlighting the economic achievements during his 15-year position as president, will definitely be hurt by the uneasiness of the current economic landscape of his country.

Business leaders and financial markets have stated their concern towards an Erdogan re-election, stating that the man has already accumulated too much power by managing the country’s economy for such a long time. Financial analysts and political opponents have mentioned their belief that the recent change in the lire’s value was caused by Erdogan himself, since he did not respond to requests by banks and financial officers proposing to raise interest rates. The president has opposed to this strategy, defined by experts as necessary to decrease the pressure on the currency and lower Turkey’s inflation, which is now over 10 percent.

In an interview with Bloomberg News on Monday, he stated his plan to gain even more control over the Central Bank if he were to win the presidency. He followed by saying that “From the moment we move to a presidential governing system, our effectiveness there will be very different” saying that having responsibility over Central Bank would enable for him to be held accountable for future financial struggles. Several opponents of Erdogan have warned that this procedure could trigger an economic crisis. Former Central Bank governor and candidate for the Parliament Durmus Yilmaz has stated that “Turkey did try the exact same thing in 1994 and that’s how we ended up with a crisis”.

On the other hand, the president’s officials supported his rhetoric and countered his opponents. Bekir Bozdag, deputy prime minister, was approached by the Anadolu news agency, and attributed the lira’s recent changes to a foreign plot targeted to damage Erdogan’s campaign. He stated that “manipulating the dollar” will not hurt the nation or change the election’s results.

Besides from president Erdogan’s action, another reason for the lira’s recent value drop is the fact that the United States Federal Reserve has raised interest rates, which has taken investors away from economies like the one from Turkey. Analysts have stated that an effective way to proceed would be for Turkey to also raise their interest rates. They have also pointed out that, throughout his 15-year management of the economy, the president has accumulated an amount of foreign credit that exceeds the amount that the country is able to manage. Besides from struggling to handle the debt, the banks that manage most of said credit are being unable to extend it to Turkish businesses, which is also affecting medium to small businesses. This has been paired with a recent decline on foreign direct investment towards the country, which has proven to be one third the amount that it once was.

Featured Image via “President of Russia”