Turkish – COOPER GENERAL NEWS

ISTANBUL — The Turkish lira hit new lows on Thursday after the Central Bank reduced interest rates for the fourth successive month in what has become President Recep Tayyip Erdogan’s increasingly personal battle to turn an ailing economy around.

The lira plunged to 15.60 against the dollar in the hours after the rate cut, down 5 percent in the day. The cut was widely expected since Mr. Erdogan announced his intention last month to lower rates despite soaring inflation of more than 20 percent.

Mr. Erdogan has resisted following generally accepted policy of raising interest rates to contain inflation, choosing instead to drive rates down in an effort to encourage growth with an eye on elections 18 months away. He has promised to increase production and employment in what he casts as an “economic war of independence.”

Driving the lira down in value appears to be part of a policy to make Turkey more competitive in export markets. The lira has lost nearly 50 percent of its value this year.

Yet the currency crash has hit Turkish citizens with almost daily price increases and inflation rates of 21 percent, although analysts say unofficial rates are double that.

In a sign of how urgent the economic situation has become, soon after Thursday’s rate cut, Mr. Erdogan announced in a televised news briefing at the presidential palace that he would be raising the minimum wage in the new year by 50 percent.

“With this raise, we proved our determination to prevent our employees being crushed by price increases,” he said. He promised to prevent speculation on the currency and to end the volatility. “There is no need for such speculation. Our money is here, and it is the Turkish lira. We will not allow it to crash.”

Mr. Erdogan has taken increasing personal control over the country’s economy and monetary policy, changing the head of the Central Bank several times in recent years and explaining that because he was responsible to voters for the economic performance of the country, he should be involved in the decision making.

Yet it is his repeated interference and unorthodox policies that have scared investors and rattled markets.

Nureddin Nebati, the Turkish finance minister, reiterated Mr. Erdogan’s announcements in his own comments on Twitter. “We said, ‘We will not subjugate the minimum wage earner to inflation.’ We did not, we do not,” he wrote. The government was also reducing the tax burden on employers, he wrote.

But Mr. Erdogan’s political opponents were quick to cast criticism, while analysts pointed to the contrast with Britain and Norway, which both raised interest rates on Thursday to counter rising inflation in their economies, moves that were met favorably by the markets.

“This is now a deliberate evil,” Ugur Gurses, a financial analyst and former central banker, tweeted about the latest government moves. “It’s a shame for the country.”

A former prime minister, Ahmet Davutoglu, in light of the day’s crushing fall of the lira, derided the increase in the minimum wage. The wage had decreased in value by 110 U.S. dollars, which was more than the increase was worth, he said. “The word for taking $110 out of people’s pockets by pretending to give them 1,425 TL is ‘stealing’!” he said.

Mustafa Murat Kubilay, a financial analyst, said Mr. Erdogan’s latest moves were aimed at bolstering production and exports in the first quarter of next year to put him ahead for elections.

“As imports decrease because of increasing poverty, there would be a current account surplus,” Mr. Kubilay said. “The Central Bank reserves will increase, and, in the medium term, the aim is for currency price to stabilize.”

“Sacrificing income tax and the increase in the minimum wage is an indication that we have entered the election process,” he said.

The thinking was that if the pandemic were finished, along with Turkey’s drought, by next summer, and with the tourism and the construction sectors reviving with low-interest-rate loans, then conditions would be set for snap elections, Mr. Kubilay said.

But the plan was fraught with weaknesses, he said. He warned that there could be significant money flows out of the country, difficulty procuring imports needed for the country’s exports, and even a possible social explosion as people experienced deepening poverty.

ISTANBUL – Affected by the restrictions on his tobacco shop, Ozgur Akbas helped organize a demonstration in Istanbul last month to protest the rules he called unfair and imposed on traders during the pandemic.

“There are a lot of friends who have made,” he said in an interview. “And some are on the verge of suicide.”

The Turks struggled with a falling currency and double-digit inflation for two years when the pandemic broke out in March, greatly worsening the country’s deep recession. Nine months later, when a second wave of the virus swept through Turkey, there are signs that a significant segment of the population is overwhelmed by debt and is increasingly starving.

MetroPoll Research, a respected polling organization, found in a recent survey that 25 percent of respondents said they couldn’t meet their basic needs. Mr Akbas said he sees it with his customers every day.

“People are at the point of explosion,” he said.

For President Recep Tayyip Erdogan, who had drawn attention to himself this year with an aggressive foreign policy and military interventions at home and abroad, things suddenly came to a head in November.

The government admitted it had underestimated the scale of the Turkish coronavirus outbreak by not recording asymptomatic cases, and new data showed record rates of infection in the country.

The Turkish lira was hit by a record devaluation – a fall of more than 30 percent against the dollar this year – and foreign exchange reserves were depleted. Coupled with double-digit inflation, the country is now facing a balance of payments crisis, Moody’s Investor Service said recently.

The crisis comes as Mr Erdogan will lose a powerful ally when President Trump leaves office next month. Turkey is already facing sanctions from the United States for the purchase of a Russian anti-missile defense system and the European Union for gas drilling in waters claimed by Cyprus. Mr. Trump was instrumental in halting Washington sanctions by this month.

Mr. Erdogan was slow in congratulating President-elect Joseph R. Biden Jr. on his victory. Analysts believe that a Biden government will tighten Mr Erdogan’s moving balance sheet on human rights and democratic standards.

To cope with the changing Turkish economy, Mr Erdogan recently moved with a ruthlessness that is usually carefully hidden. He appointed a new head of the central bank, and when Mr Erdogan’s finance minister, who is also his son-in-law and heir, resigned, the president surprised many by accepting the resignation and replacing him.

Then the president promised economic and judicial reforms, and even gave the option to release political prisoners – something some in his own party advocate to improve relations with Europe and the United States.

In mid-December, Mr Erdogan announced a new aid package to surprise small businesses and traders for three months. Last weekend he went to a bakery to do some shopping to help out the dealers.

However, critics have described Mr Erdogan’s various maneuvers as too little, too late.

Former Treasury Secretary Berat Albayrak may have been a convenient scapegoat – little is known about what really happened in the presidential palace – but his dramatic fall from grace and total disappearance from public life suggest a more serious course correction. It seems that the economic crisis and the consequences for Mr Erdogan’s own fate have become primary concerns.

Updated

Dec. Dec. 27, 2020 at 11:08 am ET

Mehmet Ali Kulat, who conducts opinion polls for political parties, including Mr Erdogan’s Justice and Development Party, said the president is closely monitoring the polls.

“What he’s paying special attention to is how things affect society,” said Kulat.

Recent opinion polls show that Mr Erdogan’s AK party has fallen to its lowest level in the 19 years in which it was at the forefront of Turkish politics and, according to MetroPoll, is around 30 percent. This figure suggests that the party’s alliance with the Nationalist Movement Party would not secure Mr Erdogan the 50 percent of the vote required to win a presidential election.

“The next elections are not a big deal,” said Asli Aydintasbas, Senior Fellow at the European Council on Foreign Relations. “There’s a good chance he’ll lose if he doesn’t either expand his coalition or manage to reach people who voted for the opposition.”

“His chances of being re-elected are under 50 percent,” she said. “So finally,” she added, the question is, “is he smart enough?”

The MetroPoll poll found that the majority of Mr Erdogan’s supporters and 63 percent of respondents overall believe that Turkey is going in a worse rather than a better direction.

These numbers are confirmed by what aid organizations see on the ground.

Hacer Foggo, founder of the Deep Poverty Network, a group that helps street vendors and informal workers, said she had never seen a plight like this in her nearly 20 years working to tackle urban poverty in Turkey.

When the first lockdown began in March, she received calls from people begging for help with feeding their families. Street vendors and scrap collectors were particularly hard hit.

“When they say there is no food at home, it means there is no food at the neighbour’s either,” she said.

Their network has helped 2,500 families in Istanbul and matched donors with families to help them purchase food and diapers for children. Her voice cracked when she described a mother who said her baby got a size smaller in diapers.

“A baby should be gaining weight, not getting smaller,” said Ms. Foggo. Other women were unable to breastfeed because they lacked food, and more people were forced to look for food that was already scarce in the trash.

“I’m 52 years old and this is the biggest crisis I’ve ever seen,” she said.

The economic problems started before the pandemic, she said, but she blamed local and national governments for lacking a strategy to tackle growing poverty and failing to improve social services.

Indeed, the economic boom came after Mr Erdogan tightened his reins on the country, including the economy, by gaining far-reaching new powers under a new presidential system launched in 2018. International observers cite these changes as the main reason for their concern about the country’s economic collapse.

“Turkey’s weak and deteriorating governance is a major credit weakness that underpinned our decision to downgrade Turkey by several notches since the presidential system was launched in mid-2018,” Moody’s said in a report earlier this month.

Mr Akbas, the trader who runs the tobacco shop, described two elderly customers who came to his store for a day last week in an affluent part of the capital, Ankara, to illustrate how inflation has shot people up.

A woman asked if she could buy a single egg. The second woman, who had become tidy, asked if he had free bread. Stunned, he filled a bag for her.

“Retirees are in a very bad position,” he said. “What I hear from people is, ‘Enough is enough. We made it up to our necks, we can’t make any money, ”and the 70- and 80-year-olds say they will throw themselves on the street.