Turkish Gov’t Promises Boost Lira Amid Currency Crisis
Erdoğan has faced growing domestic pressure amid soaring inflation
Turkey’s embattled lira was boosted on Tuesday by government promises to protect savings from the currency crisis which has dented the popularity of the country’s president.
Turkish President Recep Tayyip Erdoğan said the government would guarantee savings in lira to encourage people to keep the local currency rather than exchanging it for more stable foreign currency.
The main opposition party, the Republican People’s Party (CHP), said the government does not have the resources for such guarantees.
The lira has lost more than 40% of its value this year and the reported inflation rate is more than 20%; the opposition has argued it is well above that.
Polls have shown a gradual drop in popularity for the Turkish president and his party, the Justice and Development Party (AKP), while opposition parties have strengthened cooperation, possibly creating a bigger threat at future ballot boxes.
Voter decision isn’t solely based on [the] economy. It’s also an emotional decision defined by identity and belonging
However, Can Selçuki, who heads the polling company Türkiye Raporu, said the opposition hasn’t been able to get AKP supporters to switch sides and believes they might have been scared off by a more aggressive opposition.
Selçuki told The Media Line that his polling showed a slight recent increase in support for Erdoğan’s AKP.
“Voter decision isn’t solely based on [the] economy. It’s also an emotional decision defined by identity and belonging. So as the opposition gets more aggressive, the CHP leader in particular, it’s reasonable to expect that some disgruntled AKP voters [who] joined the undecided, come back to support [the] AKP,” Selçuki said.
However, he cast doubt on whether the increase in support for the AKP would be sustainable as the economy continues to struggle.
“With inflation, it’s going to get more difficult to get by,” said Selçuki, who is also an economist based in Istanbul.
Much of the economic crisis has been blamed on the unorthodox policies that Erdoğan has championed, including keeping interest rates low in the belief that it will boost economic growth.
However, economists argue interest rates must increase to stop rising inflation.
The government has argued that a decrease in Turkey’s currency would boost its exports by making them cheaper.
Selçuki said this would only benefit a minority of Turkey’s exports while most will be negatively impacted by rising import prices.
Foreign investors, which Turkey largely relied on for its economic growth, have been concerned that there is a lack of independence in the central bank which has had several governors and policymakers dismissed.
The lira also faced a major drop after Erdoğan put in his son-in-law as the finance minister in 2018.
That same year, Turkey faced another currency crisis after the US imposed sanctions due to the detention of an American pastor.
The financial fallout was partly blamed for Erdoğan’s party losing local elections in Istanbul and Ankara.
The Turkish president was previously credited with overseeing years of economic boom and development for the country.
However, his recent unorthodox policies, coupled with increasingly centralized power, have disgruntled many people in the country, including some who were formerly close to him.
His former finance minister, Ali Babacan, left the AKP to form his own party and the recent crisis has led to hope from the opposition that Erdoğan won’t hold power past the scheduled 2023 elections.
There has been widespread speculation that the vote will be held earlier, a move some in the opposition have wanted.
The economic situation is a common problem for all the segments of the political spectrum in Turkey
Ilke Toygür, a fellow at the German Institute for International Security Affairs focused on Turkey, was skeptical that would happen as there is currently no benefit to the AKP in doing so.
“There’s still one and a half years and this is a super long time in Turkish politics,” she told The Media Line.
Toygür added that the biggest impact of the economic crisis has been that it is bringing polarized groups together as they feel the effects of the lira’s fall and rising prices.
“The economic situation is a common problem for all the segments of the political spectrum in Turkey,” Toygür said.
Toygür said she believed the government was pinning its hopes on a boost to the economy in the summer with the expectation that a lower lira will benefit the crucial tourism industry.
Questions remain about why the government was holding firm on policies that have hurt the currency so badly.
Erdoğan’s influence in the government greatly increased after a slim victory in a 2017 referendum that scrapped the position of prime minister and centralized power around the president.
“[The] presidential system … is ever more personalized. And then you are just guessing why a leader follows such policy even if they are strongly unorthodox. I assume that they just want to try something different.”