Turkey’s Reeling Economy Is an Added Challenge for Erdogan

The Turkish lira lost nearly 30 percent of its value against the dollar in the past year as inflation soared,  severely damaging Turks’ purchasing power and hurting Mr. Erdogan’s popularity. In January, inflation cooled slightly, to an annual rate of just under 60 percent, as energy prices fell.

Turkey also faces a mountain of external loan payments, worth nearly $185 billion, that have grown harder to pay off because of a plunge in foreign currency reserves, raising fears of a crisis. International investors, worried about heavy debt burdens at Turkish companies, have increasingly pulled money from the country since 2018.

Adding fuel to the fire is Mr. Erdogan’s insistence on lowering interest rates in defiance of a broad economic consensus that inflation should be contained by raising them.

Although that approach has helped stabilize the lira’s free fall — a dollar now buys nearly 19 lira, compared with 13.50 a year ago — it has come at a high price. Today, over two-thirds of households are struggling to pay for food and rent, and more than half of workers earn wages worth less than the equivalent of $300 a month because of the lira’s devaluation, according to an analysis by the Middle East Institute.

Mr. Erdogan has tried to offset the pain by increasing salaries for public-sector employees, raising the minimum wage twice last year and boosting fixed pension payments. But those measures have largely been gobbled up by inflation, said Atilla Yesilada, an investment analyst with Global Source Partners in Istanbul.

Article source: https://www.nytimes.com/2023/02/19/business/turkey-earthquake-economy-erdogan.html