• The Turkish lira has lost 90% of its value against the US dollar in the last decade due to Erdogan’s lower-interest rate monetary policy.
• On May 22, the Turkish Lira fell under 20 against the USD on foreign exchange markets, and the Turkish Central Bank’s net forex reserves dropped below zero for the first time since 2002.
• Turkey’s foreign trade deficit widened by 44% in April 2023 compared to last year and forex demand amongst Turkish nationals is at an all-time high.
Turkey’s Financial Collapse
Turkish President Recep Tayyip Erdogan’s re-election on May 28 risks exacerbating his country’s financial collapse – a situation often referred to as “Erdoganomics”. This unorthodox approach towards economic management has caused Turkey’s currency, the Lira, to lose 90% of its value versus the U.S. dollar over the past decade.
The Crash of The Lira
On May 22, 2021, The Lira hit an historic low when it fell below 20 against the U.S. dollar on foreign exchange markets – three days after The Turkish Central Bank’s net forex reserves crashed below zero for the first time since 2002 – at minus $151 million. As a result of this decision-making, core inflation in Turkey was 45.48% as of April 2023.
The Roots Of Erdoganomics
Erdogan’s approach towards interest rates partially finds its roots in Islamic Banking traditions which prohibit payment via interests and he has associated with Islamic political tenets and Quranic views on finance – even firing previous ministers who did not comply with his vision including his own son-in-law..
Turkey is currently experiencing intense dollarization with citizens holding USD rather than their national currency due to a long-standing issue of trade deficit – where imports exceed exports – which further widened by 44% in April 2023 compared to last year reaching $8 billion dollars in value.
Conclusion: A Grim Outlook
Erdoganomics goes against conventional economic methods leading analysts to predict a gloomy outlook for Turkey if this trend continues; however, only time will tell how Erdogan’s reelection may affect these ongoing issues plaguing his country’s economy moving forward into 2022 and beyond.