• Turkey’s financial crisis is worsening with the re-election of President Recep Tayyip Erdogan, whose “Erdoganomics” goes against conventional economic methods.
• The Turkish Lira has lost 90% of its value versus the US dollar in the last decade and its core inflation rate was 45.48% in April 2023.
• 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 — to minus $151.3 million.
Turkish Financial Crisis Worsens After Re-Election of Erdogan
YEREVAN (CoinChapter.com) — The May 28 re-election of Recep Tayyip Erdogan as the President of Turkey risks exacerbating the country’s financial collapse, where the so-called “Erdoganomics” is king.
Background Recap
Over the past decade, the Turkish Lira has experienced a collective loss of 90% in its value, mainly due to Erdogan’s lower-interest rate monetary policy. The President believes it would stimulate economic growth and lower inflation, as opposed to a broader economic view.
This attitude toward interest rates partially finds its roots in the traditions of Islamic Banking, which fundamentally prohibits payment via interest rates. Notably, the Turkish leader has associated with Islamic political tenets and Quranic views on finance.
The Latest Lira Crash
On May 22nd,the Turkish Lira fell under 20 against the USD on foreign exchange markets. This marks a historic low for the currency in its history, three days afterthe Turkish Central Bank’s net forex reserves dropped below zero forthe first time since 2002 — to minus $151.3 million.
Dollarization & Trade Deficit
This decision-making is to combat Turkey’s intense dollarization. This USD dominance stems from Turkey’s long-standing issue of trade deficit. In simpler terms, it’s when a country imports more than it exports.
In particular,Turkey’s foreign trade deficit widened by 44% in April 2023 comparedto last year; this gap measured up to $8.85 billion in value.
Forex demand amongstTurkish nationals is at an all-time high even before elections; evidentlythe citizens trust more in USD than their own national currency. With such grimeconomical issues facing Turkey today; investors should keep an eyeon what happens next as President Erdogan enforces his unorthodoxeconomic policies onto his nation’s economy.
<