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For Erdogan, the bill for the debt-driven growth of Turkey is due



The shocking accusation of the Turkish governing party in the mayoral elections on Sunday in Istanbul was more than a yearning for a new leadership in the country's largest city. It signaled a growing despair over the economic catastrophe that the nation experienced under the reign of President Recep Tayyip Erdogan.

During his 16-year tenure as Turkey's top leader, Mr. Erdogan has repeatedly achieved his goals of delivering strong economic growth. But unlike an athlete who sets record-breaking numbers with performance-enhancing drugs, he has led to expansion through aggressive recourse to debt. He has honored his friends in the real estate and construction industries who have filled the horizon with monumental infrastructure projects.

The bill has matured. For the past two years, financiers have taken note of the huge debt burdens of large Turkish companies and feared the increasingly dubious prospects of a full repayment. Investors have pulled their money out of the country and lowered the value of the Turkish currency, the lira, by more than 40 percent against the US dollar.

The result is an annual inflation rate of about 19 percent, which exceeds normal levels people and businesses alike. Farmers have to pay significantly higher prices for imported fertilizers and fuel for their tractors. Families pay more for vegetables and eggs. The factories pay extra for imported components such as electronics and parts. The official unemployment rate exceeds 14 percent.

With the decision to entrust the main opposition party, the People's Republican Party, with control of Istanbul, the city in which Erdogan's political career began a quarter of a century ago, voters evidently expressed their general misfortune with these means of governance ,

But the common denominator in Turkish life, the factor that overlaps traditional political divisions, is the uncomfortably crucial force of economic decline.

However, high interest rates also increase the likelihood of borrowing for Turkish companies and consumers, reduce car sales, discourage new businesses and affect economic activity in general.

Mr. As you know, Erdogan has denounced the high interest rates as the supposed cause of inflation, which is something of the sobriety of the shattered furniture left over from the last embankment, and called on them to fall behind to get growth back on track. The appointment of his son-in-law as the most important economic supervisor in the past year has damaged the meager confidence in the independence of the Turkish central bank.

Mr. Erdogan could use his power to cut interest rates, send more credit through the economy, and, at least for a while, make companies feel better about their prospects. He could supplement the celebrations with government spending and take advantage of Turkey's still low public debt.

However, this would lead to a further decline in the lira and at the same time further diminish confidence in Turkey's economic leadership. The result would be stronger inflation, exacerbating pressure on consumers and businesses. Or Mr. Erdogan can accept what he has long rejected as unbearable – much lower growth rates than the 6 and 7 percent per annum to which he has become accustomed The judgment in the mayoral elections in Istanbul suggests that the people in the biggest Turkish city are not crazy about their choice and can not be soothed by the man responsible for the country.

International markets were pleased with the likelihood of a weakened Erdogan, with the lira rising slightly at the start of trading on Monday. Those who control the money seem to have lost confidence in the Turkish president and are pleased about the prospect of another party taking over some of the economic levers.


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