Shortly before the start of the pandemic, Turks and foreign analysts warned of the effects of the Erdogan government’s bad moves and decisions on the economy.
At the end of 2019, when experts sounded the alarm bells for the future of the Turkish economy, the US dollar in the Turkish economy hovered at 7 points. After 24 months, the dollar in the Turkish market exceeded 11 points. And this, despite recent interventions in the market.
In recent months, a large part of the Turkish Cypriot community has not been able to meet its basic financial obligations and needs.
The unprecedented fall in the value of the Turkish lira, which continued into 2021 amid the pandemic, is affecting Turkey and the Turkish Cypriot community, which depends on Ankara in many ways. In 2021, the slump has left behind accumulated socio-economic problems in Turkey and the occupied territories, with experts once again warning that the means of intervention of the Turkish government and Turkish leaders are limited.
The obsession with interest rates
In the rest of the world, such as in Turkey, 2021 began with the hope that the coronavirus vaccine would lift humanity out of the great health crisis. In the first weeks of 2021, the Turkish president sent messages of hope to his citizens, stressing that mass vaccinations will gradually return Turkey to normal. In addition to controlling the pandemic, the Turkish tourism industry would find jobs and Turkish exports would increase.
As part of this reasoning, Erdogan insisted on the correctness of a well-known and irrational economic recipe for low interest rates. After replacing finance ministers and central bank leaders, Erdogan has insisted since early last year that low interest rates are the only way forward for the Turkish economy. Thus, the new leadership of the Turkish Central Bank in the year 2021 went ahead with the reduction of interest rates.
The reduction in the interest rate increased the value of foreign currencies in the Turkish market. A few days ago, the exchange rate of the euro against the pound exceeded 20 points. This development was accompanied by a significant increase in inflation and commodity prices. It is noteworthy that at the same time, the Turkish opposition warned of the consequences of the depletion of monetary reserves of the Central Bank.
The Erdogan government attempted to intervene in the unprecedented crisis with innovative ideas in the final weeks of 2021. Earlier last week, the Turkish government announced a new program that would automatically “compensate” for the devaluation of deposits in pounds Turkish versus foreign currencies. At the same time, Turkish banks have funneled large amounts of fresh funds into the Turkish market. According to Turkish analysts, some of the new funds channeled to the Turkish market have arrived in Istanbul from overseas, such as Qatar, the United Arab Emirates and Venezuela. This information had not been officially confirmed or denied by Ankara at the time of writing.
The aforementioned new maneuvers of the Turkish government in the field of the economy in the previous days have resulted in the increase in the value of the Turkish lira against foreign currencies. The case of euro-pound correspondence is typical. As pointed out above, last Monday the euro in the Turkish market exceeded 20 points. Today, a week after the Erdogan government’s further intervention in the Turkish economy, the euro fell to 13 points.
Analysts and economists argue that the temporary devaluation of currencies in the Turkish market should not lead us to premature and wrong conclusions. In the last twenty-four hours of 2021, the euro was perhaps hovering 13-14 points against the lira, but a year ago it was around 8-9 points. In other words, the losses of the Turkish economy remained. The same goes for inflation and rising commodity prices.
In the occupied territories
Inflation and high prices are two phenomena which, at the end of 2021, left thousands of households in a particularly difficult situation. In recent months, a large part of the Turkish Cypriot community has not been able to meet its basic financial obligations and needs. The same goes for the Turkish Cypriot leadership, who is trying to manage the financial crisis with the limited “tools” at their disposal. The “government” on the one hand is trying to pay the wages and pensions of the “public”. On the other hand, they are criticized by the rise in the prices of goods and services and the crisis that has erupted in the field of fuels and electricity.
It should be noted that in the shadow of the aforementioned developments, a debate on the use of the euro has recently opened in the occupied territories. The latest information indicates that Ankara is disturbed by this development. And for this reason, about twenty-four hours ago in Ankara, Erdogan met Tatar and discussed the course of the economic crisis in the occupied territories. The latest information indicates that Erdogan has promised Tatar that the financial crisis will be brought under control in early 2022 and that Ankara will continue to provide financial support to the Turkish Cypriots.
All of this has happened at a time when thousands of Greek Cypriots form long lines daily at roadblocks to travel to the occupied territories. Greek consumers are rushing to take advantage of the devaluation of the pound and supply the occupied areas with basic necessities at lower prices. Representatives of the Turkish Cypriot opposition, referring to this development, criticized the Turkish Cypriot leadership on the grounds that their flawed policies turned the occupied territories into an “economic paradise” for the Greek Cypriots.