Turkish President Recep Tayyip Erdogan on Sunday invoked Islamic law to restate his promise to bring inflation under control without raising interest rates, even as Turkey’s economy teetered on the brink of a meltdown and its currency fell to an all-time low against the euro.
“Sooner or later, just as we lowered inflation to four percent when I came to power … we will reduce it again,” Erdogan said of inflation on Sunday.
“But I won’t let my citizens, my people, be crushed by interest rates,” he added. “God willing, inflation will fall as soon as possible.”
Erdogan dismissed domestic and international criticism of his economic policies as “absurd,” and called speculation about possible capital controls to arrest the declining value of the lira – possibly including an outright ban on Turkish citizens buying foreign currency – as “rubbish.”
“We are lowering interest rates. Don’t expect anything else from me. As a Muslim, I’ll continue to do what is required by nas,” he said.
Nas is a Turkish word referring to the teachings of the Quran, which has some dismal things to say about loaning money for interest. Erdogan styles himself as a global champion of Islamic values, having worked for decades to re-Islamicize Turkey and reject the secular course charted by legendary reformist leader Kemal Ataturk.
“The Turkish economy will continue on its path in accordance with the rules of a free market economy, as it has done so far,” Erdogan insisted.
The lira fell to below five percent of the euro for the first time on Monday, completing an astonishing 35-percent collapse in value over the past month and 50 percent this year.
AFP noted the lira dipped again after Erdogan invoked Islamic teachings to explain why he will not allow interest rates to rise, his second such religious declaration in the past few weeks.
“You cannot run a modern economy integrated into the global economy on this basis. Even Saudi Arabia really does not attempt full shariah compliant macro(economic) management,” economist Timothy Ash of BlueBay Asset Management said in a note to his clients quoted by AFP.
Erdogan apparently thought stacking the central bank with his cronies and forcing interest rates down would create an economic boom to shore up his flagging popular support, but his policies unleashed devastating inflation and alienated his business allies, as represented by the powerful Turkish Industrialists and Businessman’s Association (TUSIAD).
TUSAID declared over the weekend that Erdogan’s policies are “not only creating new economic problems for businesses, but for all of our citizens.”
“It is urgent that we assess the damage that has been done to the economy, and quickly return to the implementation of established economic principles, within the framework of a free market economy,” the organization said, an unusually harsh bit of criticism from the Turkish business community.
Erdogan lashed out at TUSIAD by name in his Sunday remarks.
“You are working to put in power a government that you can exploit. This nation will not allow you to do that. I am calling you out. You have only one job: to ensure investment, production, employment and growth,” the president snapped.
“The currency’s collapse fed into consumer prices almost overnight, resulting in inflation so rampant that supermarket employees were barely able to keep up with changing labels. Working-class Turks and pensioners began forming long lines in front of municipality stalls to get subsidized bread in recent weeks,” Bloomberg News reported grimly.
Worst-case scenarios floated by international analysts have Erdogan bringing Turkey’s economy down in hyperinflationary flames – and triggering a cascade collapse across Europe. Investors are increasingly nervous about Turkey defaulting on its debts, and even those interested in loaning more money are having trouble determining the value of Turkish assets when the lira plunges a little more every hour.
Turkey’s banks are in a precarious position because over half of their deposits are made in foreign currency, which they loan to the central bank. The central bank sold off a great deal of its foreign currency reserves over the past month to stabilize the lira. If Turkish depositors stampede to pull their foreign currency out of the banks, the entire financial system could collapse.
Staunch Erdogan supporters in the Turkish heartland are sharing grave doubts with foreign reporters as inflation crushes their hopes.
“I’m looking for work, I can’t pay my debts,” a Turkish laborer and longtime Erdogan supporter told the Greek newspaper Ekathimerini on Monday, speaking from a district that gave Erdogan 75 percent of the vote in 2018.
“There is no solution. People are fed up now,” the dejected worker said.
“Developments since 2018 when Turkey had its first economic crisis under Erdogan … all point to the fact that Erdogan is a sultan in the autumn of his career,” director Soner Cagaptay of the Washington Institute for Near East Policy’s Turkish program told Ekathimerini.
The UK Guardian found a woman in Istanbul attempting to pawn her jewelry and confessing she checks the price of gold “roughly 50 times a day” as the lira plummets, while her husband dabbles in cryptocurrency.
“My husband said we should get the gold assessed. We’re undecided about what to do because the price of everything is fluctuating. We can’t get a loan to pay for it as we can’t trust what will happen with the currency. I don’t know what to do,” she said.
A Turkish currency trader told the Guardian he pulled all the gold displays from his shop windows because he was tired of people flooding into his store to ask the current value of gold, and then departing without buying anything. Other traders reported panic-buying of U.S. dollars.
Turkey’s stock market is beginning to sputter with “circuit breaker” trading shutdowns, two of which occurred on Monday after “snowballing losses” triggered a round of “panic selling,” according to brokerage manager Tuna Cetinkaya.
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