Free Fall Of The Turkish Economy And Its Impact On Daily Life
Its not long ago that Turkey was among the fastest growing economies in the world.
After years of great excitement over BRICS countries, it was Turkey that seemed to be standing out as the new poster boy of growth among developing economies.
The Turkish economy grew at a rate of 7.22 percent in the second quarter of 2018, thereby overtaking even China and India.
But all that has gone for a toss with the economic crisis that has engulfed the nation. With political upheaval threatening the internal stability of the country, the economic crisis could not have come at a worse time.
Inflation is super high, the Turkish currency Lira has lost a lot of its value and the fiscal and current account deficits are extremely high.
This toxic combination is not only causing deep pain to the Turkish economy but is also making the rest of the world, especially Europe, very nervous about the spillover effects of this crisis on other countries.
Causes Of The Crisis
Most experts agree that the causes of Turkey’s economic crisis can be traced back to the decision of the country’s President Recep Tayyip Erdogan to not let the Central Bank of the state work independently.
This led to a chain reaction which eventually culminated in the present morass that the Turkish nation is caught in.
The Central Bank of Turkey had kept its target at keeping inflation down to 5%. However, the economy was in a process that economists call ‘overheating’ and inflation was running as high as 16 percent.
At the same time, Turkey had accumulated massive foreign-currency debt to fuel its economic performance.
As a result, Turkey has very high fiscal and current account deficits. The foreign-currency debt of Turkey now stands at 50% of its GDP.
The Turkish currency Lira had been weakening drastically due to all these factors and when a diplomatic brawl between USA and Turkey led to the former taking decision which took the currency’s value down even further.
Lira has lost 40% of its value this year overall.
If the Central Bank is allowed to raise the interest rates, it will attract investors who will have to get Lira for buying assets in the country. So, the currency would strengthen, deficits would reduce and inflation would come down. Alas, none of that seems to be happening right now.
Effects On Turkish People
Bad economic conditions are expected to affect the people of any country adversely.
But here too politics plays a part.
Those who support Erdogan are willing to stand by him as they see the American tariffs on some Turkish products as an attempt by USA to bully their country.
While the inflation is hurting people, it’s also improving tourism which is supporting many industries.
However, others see big construction projects arising out of the economic growth as a waste.
But what is keeping the situation quiet at the moment is that there is no panic and people still have faith in the banking system.