Edited by: TJVNews.com
Under the leadership of President Recep Tayyip Erdoğan and his increasing authoritarianism and unorthodox ideas about interest rate policy, Turkish citizens are now grappling with the Turkish lira plunging in value, high inflation, rising borrowing costs, and correspondingly rising loan defaults. The crisis was caused by the Turkish economy’s excessive current account deficit and large amounts of private foreign-currency denominated debt. Some analysts also stress the leveraging effects of the geopolitical frictions with the United States and the enforced tariffs by the Trump administration in 2018 on some Turkish products such as steel and aluminum, as was reported by Wikipedia.
While the crisis was prominent for waves of major depreciation of the currency, later stages were characterized by corporate debt defaults and finally by contraction of economic growth. With the inflation rate stuck in the double digits, stagflation ensued, according to the Wikipedia report. The crisis ended a period of overheating economic growth under Erdoğan-led governments, built largely on a construction boom fueled by foreign borrowing, easy and cheap credit, and government spending. Turkish workers are also without pensions and any kind of economic safety nets.
Since Erdogan assumed control of the government, Turkey has been running huge and growing current account deficits, $33.1 billion in 2016 and $47.3 billion in 2017, climbing to US $7.1 billion in the month of January 2018 with the rolling 12-month deficit rising to $51.6 billion, one of the largest current account deficits in the world.
Wikipedia reported that the economy has relied on capital inflows to fund private-sector excess, with Turkey’s banks and big firms borrowing heavily, often in foreign currencies. Under these conditions, Turkey must find approximately $200 billion a year to fund its wide current account deficit and maturing debt, while being always at risk of inflows drying up; the state has gross foreign currency reserves of just $85 billion. The economic policy underlying these trends had increasingly been micro-managed by Erdoğan since the election of his Justice and Development Party (AKP) in 2002, and strongly so since 2008, with a focus on the construction industry, state-awarded contracts and stimulus measures.
The motive for these policies have been described as Erdoğan losing faith in Western-style capitalism since the 2008 financial crisis by the secretary general of the main Turkish business association, TUSIAD. Although not directly related in the conflict, the Turkish invasion of Afrin largely strained US-Turkish relations, and led to mass instability in Syria. This led to global view of Turkey as an unnecessary aggressor.
Bread lines have started to appear in neighborhoods as growing numbers of people are turning to cheap, government-issued bread to fill their tables, as was reported by the New York Times.