Economic policy reversal fraught with political risks for Erdogan (August 14 ,2020)

Unrelenting inflation and the uncontrollable slump of the Turkish lira have forced Ankara to start cooling the economy, only two months after it spurred a loan bonanza to revive consumer demand and breathe life into pandemic-ravaged businesses. The abrupt reversal heightens political risks for President Recep Tayyip Erdogan as he faces growing popular frustration over economic woes that have only worsened since a severe currency shock in 2018.

The lira took another dramatic nosedive Aug. 6-7, forcing the central bank to begin curbing liquidity and heralding the end of the fledgling attempt to warm up the economy.

In early June, Ankara had pushed for a loan expansion that sent consumers on a spending spree after the downturn caused by the coronavirus pandemic. Easy access to cheapened, long-term credit resuscitated the sales of homes, cars and durable goods, which had plummeted in the March-May period. Credit was available even for domestic tourism. Public banks, which are directly under government control and dominate more than a third of Turkey’s banking sector, drove the loan expansion, but private lenders, including those of foreign ownership, were also pressured to follow suit. The rebounding domestic demand energized the industry as well and economic expectations seemed to improve.