Turkey's lira hits record lows after Erdogan's re-election
It was the worst-case scenario for Turkish markets. The value of the Turkish lira weakened against the main currencies on the first day of the reopening of the markets after the narrow victory of Recep Tayyip Erdogan. The currency was quoted at 20.0559 lira against the dollar from 19.9727 at the close on Friday, and 21.6394 against the euro from 21.3739 on Friday. This is a historic figure for the Ottoman country, whose currency has lost 77% of its value in the last five years.
The data comes in the worst projections of economists after the Turkish president's unorthodox economic policies. Erdogan raised interest rates to counter inflation, but produced just the opposite in a country already hovering around 44% inflation.
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Renewed with 52% of the vote in the second round of the presidential election against 48% for the opposition Kemal Kiliçdaroglu, Erdogan's main political challenge is the economic crisis he has generated during his term in office. "We are designing an economy focused on investment and employment, with a financial management team of international reputation," Erdogan said in his renewed victory speech, acknowledging that inflation is his main problem. But investment needs more than that.
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"Erdogan represents, in the eyes of the financial markets, the antithesis of financial orthodoxy. His economic experiments, apart from triggering inflation, have led to a collapse of foreign currency reserves, and the Turkish Central Bank has had to invest tens of billions of dollars to prop up the lira, without preventing it from bleeding to death in the last two years," comments geopolitical analyst and Forbes contributor Aleix Amorós in a conversation with this newspaper.
"However, the market does believe that these erratic macroeconomic policies will cease, not least because the country's domestic resources are dwindling. If high levels of inflation are perpetuated, the associated spending on subsidies to contain price rises will end up emptying the public coffers completely", says Amorós.
Erdogan's drift towards authoritarianism, with the replacement of parliamentary democracy by a presidency that accumulates more power, state control of the media, the imprisonment of opposition political leaders and his equidistance with the West and rapprochement with Russia also mark the decision of foreign investors. The key piece that Turkey needs to strengthen its currency once again.
"With the continuation of previous policies, the lira will continue to lose value," economist Mustafa Sonmez told EFE. The latest policies taken before the elections, far from following the strict precepts of economics, have been geared to purely electoral interests. Erdogan has increased public spending by raising civil servants' salaries and changing policies on the retirement age.
The earthquake, the Achilles heel of the Turkish economy
The devastating earthquake that struck Turkey on 6 February was the deadliest in the country's recent history. Nearly 50,000 people lost their lives and millions were left homeless. But behind the human problems, the consequences of the earthquake and recovery are devastating for the Turkish economy.
The World Bank estimates the damage at more than $34 billion for the more than 300,000 homes destroyed, almost 4% of the country's annual economic output. This is less than the estimate of the Turkish Confederation of Business and Enterprise, which puts the total cost at $84.1 billion. Indirect costs aside.
The anti-immigration component, the first consequence of the political crisis
Refugees are no longer welcome in Turkey. Those nearly four million Syrians who crossed the border from devastated Syria after its long civil war are now a problem after the earthquake wiped out all the infrastructure they inhabited. In addition to the cost of rebuilding entire neighbourhoods and cities, there is the added demand to find work in the midst of a crippling recession.
Anti-immigration sentiment is increasingly palpable, especially after weeks of election campaigning in which both Erdogan and Kiliçdaroglu have promised practical solutions. The Justice and Development Party's already victorious Erdogan has begun building schools, hospitals and housing in Syria to encourage the return of its citizens, clearly in tune with the restoration of relations with Bashar al-Assad. His opponent Kiliçdaroglu not only encouraged the return of refugees to Syria, but also made a last-minute deal with the far-right Umit Ozdag of the Victory Party.
