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 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.
[PresidentErdoganwirdin with the consequences of electoral defeat
Erdogans Baubonanza has witnessed their balance sheets worsening with the decline of the Lira. Much of their debt is denominated in dollars, meaning that their burden increases with the depreciation of the Turkish currency. Most of their revenue comes from lira, a potentially deadly mismatch that jeopardizes insolvency.
At the end of 2018, Turkey had around 328 billion US dollars of foreign currency debt, most of it in US dollars, according to official sources. About two-thirds were private companies. Private companies owed a further $ 138 billion in foreign currency debt next year.
Given Turkey's total economic output of about $ 766 billion last year, these debts are enormous. They have accused Turkey of an undesirable distinction: only Argentina appears to be at greater risk of falling into a full blown crisis.
More than economic factors explain the growing concern over Mr Erdogan's term of office. In recent years, he has expanded power by reducing the role of the military in national life and allowing Muslims to practice their beliefs free from state-enforced secularism. He has attacked democratic institutions by suppressing dissent, confiscating the property of his enemies and muzzling the press.
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.
"Inflation is so high and real wages are falling, and people are it. Nafez Zouk, senior economist for emerging economies at Oxford Economics in London, said they needed to save their money rather than spend money. "They have lost confidence in their currency and purchasing power."
Turkey has tremendous economic strengths – a relatively young population of about 80 million, a growing middle class, a crossroads between Europe and Asia, and glorious A landscape that underpins an important tourism industry.
However, Turkey has long relied on imported goods and cash borrowed in foreign currency, which makes the decline in the lira particularly painful.
The economy slipped into recession in the last six months The modest growth continued in the first three months of 2019, when the economy grew by 1.3 percent compared to the previous quarter. However, most economists saw this as a temporary phenomenon, due to the public spending that Mr. Erdogan had made at the end of March before local elections to boost wealth] The central bank has kept short-term interest rates at 24 percent to prevent that more money is spent on the exits. High interest rates encourage investors to put up with the risk of cash in Turkey.
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.