Turkish Economic Crisis 2018-Current: Politics, Debt, and Uncertainty

Turkey's economic crisis began in 2018, triggered by a currency crisis that saw the lira plummet in value. The crisis was exacerbated by a diplomatic dispute with the US, which led to a significant decline in foreign investment.

The Turkish government's decision to hike interest rates in 2018 was a response to the economic crisis, but it had a mixed impact. The move helped stabilize the currency, but it also increased the country's debt burden.

Turkish President Recep Tayyip Erdogan has been a key figure in the country's economic crisis, with his unconventional economic views contributing to the situation. He has argued that high interest rates cause inflation, which is a widely accepted economic theory, but one that he disputes.

The crisis has had a significant impact on the Turkish people, with many struggling to make ends meet due to high inflation and unemployment.

The Turkish economic crisis was caused by a combination of factors. President Erdoğan's suggestion to curb the independence of the Central Bank of Turkey after the election unsettled markets.

The economy was the greatest challenge facing Turkey, with 45 percent of people surveyed seeing it as the biggest issue. The lira's steady decline and high unemployment were major concerns.

President Erdoğan's influence over the central bank undermined investor confidence. He prioritized growth and lower interest rates, which extended the crisis rather than allowing the economy to rebalance.

Turkey's low reserves and high foreign currency debt made it difficult to rescue the economy. The country's reserves were notably low compared to its $181 billion in short-term debt denominated in currencies other than the lira.

Turkey's current account deficit is a major concern, with Indonesia also running similar deficits. Indonesia's foreign currency borrowing is roughly 30 percent of its GDP.

Unlike Indonesia, Turkey's reserves are notably low, standing at a fraction compared to its $181 billion in short-term debt denominated in currencies other than the lira. This makes it difficult for Turkey to rescue its economy in times of trouble.

Much of Turkey's foreign currency is held by banks, and that money could be withdrawn by customers if the economy takes a hit. This could lead to a vicious cycle of currency devaluation.

Turkey may not be able to buy up its currency to prevent it from spiraling further, which would force the country to find other ways to finance its debt.

The Turkish economy has been "overheating" with inflation at 16 percent in July, way exceeding the central bank's target of 5 percent.

Raising interest rates could have helped to stem such a massive increase in consumer prices, but President Erdogan has said he's in favor of lower interest rates to continue driving growth.

Higher interest rates tend to attract foreign investors, who would need the lira to buy Turkish assets, supporting the currency and making imports cheaper.

However, Erdogan's influence over the country's central bank has undermined investor confidence, experts have said.

President Erdogan continues to prioritize growth and lower rates, which will extend the current crisis, rather than allowing the economy to rebalance, as analyst Richard Briggs noted.

Turkey doesn't have large enough reserves to rescue the economy when things go wrong, unlike some other economies with similar challenges.

Turkey's reserves are notably low compared to its $181 billion in short-term debt denominated in currencies other than the lira.

Much of the foreign currency in Turkey is held by banks, and those funds could be withdrawn by customers, leaving the country vulnerable to further economic instability.

If the lira falls, Turkey may not be able to buy up its currency to prevent it from spiraling further, a situation that could worsen the crisis.

The Turkish government has taken steps to address the economic crisis, but their approach has been met with criticism. The government's three-year plan, unveiled by Finance Minister Albayrak in 2018, aims to reduce inflation, spur growth, and cut the current account deficit.

The plan includes a reduction in government expenditures by $10 billion and the suspension of projects whose tenders have not been carried out yet. This is expected to lower economic growth in the short term, from 5.5% to 3.8% in 2018 and 2.3% in 2019, but with a gradual growth increase by 2021 towards 5%.

The government's monetary policy has been a point of contention, with the central bank pursuing a loose policy to boost economic growth, despite the need for a restrictive policy to combat inflation.

The Turkish government's action plan aims to reign in inflation, spur growth, and cut the current account deficit. This three-year plan was unveiled by the finance minister in 2018 and includes reducing government expenditures by $10 billion and suspending projects that haven't been carried out yet.

The plan focuses on value-added areas to increase export volume and long-term production capacity, with the goal of creating two million new jobs by 2021. This transformational phase is expected to lower economic growth in the short term, from a previous forecast of 5.5% to 3.8% in 2018 and 2.3% in 2019.

The government is also counting on cheaper credit to stimulate the economy and improve popular support. However, the current monetary policy leads to exchange-rate volatility, high inflation, and a high risk premium.

The government's gamble may cost the economy in the long run, but it's hoping to secure votes in the coming elections. With a relatively low public-debt ratio at 40 percent, there is fiscal space for the government to support various sectors of the economy and the unemployed.

The Turkish government's economic policies have been severely impacted by President Erdoğan's interference with the central bank. He has consistently pushed for lower interest rates, despite the fact that inflation was at 11.9% in October 2017, the highest rate since July 2008.

This interference has led to a loss of investor confidence, causing the lira to plummet to historic lows. The lira's exchange rate accelerated deterioration in 2018, reaching 6.0 and 7.0 TRY per USD by mid-August.

The government's unorthodox policies have also been driven by a desire to boost economic growth and secure votes in the upcoming elections. In 2023, the central bank raised interest rates by 7.5 points to 25% to tackle inflation, signaling a shift from previous policies.

However, the damage has already been done, and the economy is still struggling to recover. The Turkish economy has been "overheating" with inflation at 16 percent in July, way exceeding the central bank's target of 5 percent.

The government's refusal to allow the central bank to do its job has undermined investor confidence, experts have said. President Erdogan continues to prioritize growth and lower rates, which will extend the current crisis, rather than allowing the economy to rebalance.

Turkey's policymakers should prepare the country for the social and economic challenges posed by the needed energy and ecological transitions, including the decarbonization of the economy. This will require huge investments in new technologies and will decide Turkey's rank among the world's economies in the future.

The government's current policies are a gamble that may cost the economy in the long run. The country's strong banks, healthy public finances, and good demographics are being spoiled by unorthodox and loose macroeconomic management.

The Turkish economic crisis has had a significant impact on the country's economy. In 2022, the annual rate of inflation from June 2021 to June 2022 reached a staggering 78.6%.

Food prices doubled and transport costs increased by 123% during this period. This is a clear indication of the economic struggles Turkey has faced.

The Turkish lira lost 20% of its value against the US dollar since the beginning of 2022. This significant decline in the value of the lira has further exacerbated the economic crisis.

2018 was a pivotal year for many global events. The year began with a partial solar eclipse visible from parts of North America.

In January, the US government announced plans to withdraw from the Intermediate-Range Nuclear Forces Treaty. This move was met with concern from other nations, including Russia and China.

The US government officially withdrew from the treaty in August 2019. The withdrawal was a significant escalation of tensions between the US and Russia.

The European Union's General Data Protection Regulation (GDPR) came into effect in May, giving EU citizens more control over their personal data. This regulation had a significant impact on businesses worldwide.

The GDPR introduced new rules for data protection, including the right to be forgotten and the right to data portability. These rules applied to any business that collected data from EU citizens.

The GDPR was a major overhaul of data protection laws in the EU. It aimed to give citizens more control over their personal data and to increase transparency around data collection and use.

The GDPR required businesses to obtain explicit consent from customers before collecting or using their data. This included obtaining consent for cookies and other tracking technologies.

The GDPR also introduced significant fines for non-compliance, including fines of up to €20 million or 4% of a company's global turnover.

In 2022, the economy experienced significant challenges. The annual rate of inflation from June 2021 to June 2022 was reported to have reached 78.6%. This was a drastic increase in just one year.

Food prices doubled, making it difficult for people to afford basic necessities. Transport costs increased by 123%, further straining household budgets.

The Turkish lira lost 20% of its value against the US dollar since the beginning of the year.

In Turkey, the economic situation was quite dire in 2022. The annual rate of inflation from June 2021 to June 2022 was reported to have reached 78.6%.

Food prices doubled, making it harder for people to afford basic necessities. The increase in food prices was just one of the many challenges Turks faced in 2022.

Transport costs increased by a whopping 123%, making it even more difficult for people to get around. This was just one of the many consequences of the economic downturn.

The Turkish lira lost 20% of its value against the US dollar since the beginning of the year. This loss of value made imports more expensive and further exacerbated the economic crisis.

The economic situation in Turkey was a perfect storm of rising prices and a declining currency, making it tough for people to make ends meet.

As the Turkish economy has struggled in recent years, several controversies and allegations have come to light. In 2017, Peoples' Democratic Party (HDP) presidential candidate Selahattin Demirtaş wrote from prison that corruption was a major problem for Turkish youth, directly linked to the AKP's governance.

Corruption allegations have been a recurring theme in Turkey's economic crisis. In May 2018, Republican People's Party (CHP) deputy chair Aykut Erdoğdu accused market participants of insider trading ahead of a 300 basis points interest rate hike by the Turkish central bank.

The Turkish government's handling of economic issues has been questioned by many. In July 2018, Turkey's Capital Markets Board suspended a directive allowing insider trading, only to reinstate it days later without explanation.

Corruption and insider trading have been major concerns in Turkey, with several high-profile allegations surfacing in recent years.

In 2017, HDP presidential candidate Selahattin Demirtaş wrote a letter from prison, stating that corruption was a major problem for Turkey's youth, closely tied to the AKP governance.

The Financial Crimes Investigation Board of Turkey (MASAK) was called in to investigate exchange rate transactions in May 2018, following allegations of insider trading by market participants who knew of a 300 basis points interest rate hike by the Turkish central bank in advance.

Turkey's Capital Markets Board (SPK) initially allowed share purchases on the Borsa Istanbul by people with access to internal company information, sparking public outcry.

Here are some key dates and events related to corruption and insider trading allegations in Turkey:

The Turkish government's handling of corruption and insider trading allegations has been under scrutiny, with many calling for greater transparency and accountability.

Foreign Plot Allegations have been a major point of contention in the controversy surrounding the company. Allegations of foreign interference were made in the "Investigations" section, where it was revealed that a former employee had been in contact with a foreign entity.

The allegations point to a potential breach of national security, which could have serious consequences for the company and its stakeholders. This is a serious issue that warrants further investigation.

In the "Email Leaks" section, it was discovered that a high-ranking official had been in communication with a foreign government, sparking concerns about the company's integrity. The emails revealed a pattern of suspicious behavior that has raised eyebrows.

The company has denied any wrongdoing, but the allegations have already caused significant damage to its reputation. The fallout from these allegations is still unfolding, and it remains to be seen how the company will recover.

The Turkish economic crisis has been a long and challenging one, with few clear solutions in sight. Without raising interest rates, Turkey has few other options to get out of its economic problems.

Turkey's earlier attempts to limit banks' foreign exchange swap transactions were seen as mere "baby steps" by Eric Robertsen, global head for foreign exchange, rates and credit research at Standard Chartered Bank. Those measures won't do much unless interest rates are raised, he said.

Turkey's critical line of defense is its interest rates policy, and it's essential to make sure that currency doesn't leave the country in a full-fledged capital flight.

The international consequences of this phenomenon are far-reaching. The global economy is expected to shrink by 3.5% in 2023, according to a report from the International Monetary Fund.

This decline in economic output will have a ripple effect on countries that rely heavily on international trade. The United States, for example, imports over 2.5 million barrels of oil from Saudi Arabia each day.

The impact on global food prices is also significant, with a 10% increase in wheat prices expected in 2023. This will affect countries that rely heavily on imported wheat, such as Egypt and Turkey.

The World Health Organization has also warned of a potential shortage of essential medicines due to supply chain disruptions. This is a concern for countries with limited healthcare systems, such as those in sub-Saharan Africa.

The international community is working together to mitigate these effects, with the G20 countries agreeing to implement measures to stabilize global markets.

Turkey's economic problems are severe, and without raising interest rates, the country has few other options to get out of them.

According to Eric Robertsen, global head for foreign exchange, rates and credit research at Standard Chartered Bank, even measures like limiting banks' foreign exchange swap transactions won't do much unless interest rates are raised.

Those measures are merely "baby steps" and won't be enough to prevent a full-fledged capital flight, which Turkey needs to avoid.

Turkey has to make sure its currency doesn't leave the country by implementing a combination of currency measures and interest rates, there's no way around that.