Turkish Lira Rates Blow Out to 1000% After Currency Intervention
bloomberg.com
bloomberg.com
Erdogan became PM in 2003; in 2005 the Turkish government introduced the "new Turkish Lira" ("YTL") by dividing the currency by 1,000,000.
Around the same time, Erdogan invested heavily in infrastructure projects, boosting the lira.
IMO, this is how he largely rose to populist power -- the economy grew for a short while, and he solidified his base early on.
But since then he's continually blocked the central bank from adjusting rates, presumably to maintain the appearance of a strong economy. This once again caused an inflationary economy.
Now those chickens are coming home to roost. The Turkish lira has been falling steadily against the dollar, and this seems like a move on Erdogan's part to continue the farce and maintain appearances of a strong economy.
He's very scared of the economy being weak, because that was his original source of power with the populace.
This is only an armchair analysis. Take it with a grain of salt.
If you take a look at GDP graphs of eastern europe, russia and the middle east, you will see that every GDP in the region rose dramatically over the period of a few years in the early 2000s. This increase in GDP in the region was not caused by turkey's investment in infrastructure, it was caused by foreign investors (mainly by the US and major players in Europe) trying to bolster their own economy by supporting emerging markets. And it worked. Turkey's istanbul stock market went from 20K to 70K points and foreign investors made a lot of money. There was a period where USD and EUR were on par with the YTL.
When the hot credit finished, Turkey started experiencing inflation again, because not enough of the money was spent on infrastructure.
It was partially spent on better healthcare and education, which won the popular vote for a second time. At this point, government was running on fumes, domestic debt went rampant.
Authoritarianism, nepotism, militarism, conservatism, religiosity, nationalism and xenophobia worked part of the way to support this sort of economy. Seeing success in its ways, and still having some popular support, the government parted ways with its next leader and changed the law to get its leader elected a third time.
At this point there were enough dissenting voices that the mayorship of istanbul was lost in an election. Government forced another election and lost again.
Where are we now? We are at a point where whoever wins, the whole population will lose. Not that different than the 90s, but at least we've got iphones and macbooks.
Fair enough. I was not paying attention to macroeconomics at that time. Still, Erdogan used the growing economy to win the secular base, while using religion and nationalism to win the non-secular base.
And now his face is a mural on every other building you see. SMH.
There was a brief moment back in 2007-2008 where they used the brilliant neo-liberal ideas to impose the ottoman narrative of "ataturk did bad" and it worked! Rich liberals swallowed up the new narrative like flies on feces. This was the time of the kurdish initiative where there was a cease-fire and liberal artists and leaders who supported the government went over to the kurdish side asking them about their motives while armed resistance grew by at least 5-fold. This quickly ended in the government bombing resistance forces and the neo-liberal agenda died right there and then. Very sad times.
I don't get it. Why would more infrastructure spending protect against inflation?
My last sentence was misleading because I said "this is one of the various modes of inflation", but what I really meant was "this is one of the various modes of an inflationary/deflationary economy".
EDIT: And this is specifically in the offshore market. The article doesn't mention high interest rates for Turkish banks to borrow Lira. This sounds like more of a matter of currency controls and market manipulation rather than an indicator of a currency collapse or the return of hyperinflation.
and doesn't look as bad as the headline.
* "The global economy has experienced four waves of debt accumulation over the past fifty years."
* "The first three debt waves ended with financial crises in many emerging and developing economies."
* "The latest, since 2010, has already witnessed the largest, fastest and most broad-based increase in debt in these economies."
* "Debt distress... [is] more likely."
The pandemic has inflicted the largest economic shock in half a century to emerging-economy governments, businesses, and households that had borrowed the most ever in proportion to GDP prior to the pandemic. Turkey, I'm afraid, may be only the proverbial canary in the coal mine.
Turkey's Inflation and Lebanon Explosion.