Erdogan targets Turkish banks over economic crisis (Al-Monitor, August 11,2017)
SUMMARY Turkey’s president is blasting banks for making what he considers to be unfairly large…
Turkish consumer prices rose 7.25% in April and annual inflation hit 69.97%, more than tripling in just six months — a price explosion with few precedents in the recent history of the country.
Food, clothing and transport prices were among the major drivers of inflation in April, according to data released Thursday by the Turkish Statistical Institute. And although the central bank significantly hiked its year-end inflation forecast to 42.8% last week, it appears bound to miss the mark, with the annual rate likely to reach the range of 80% to 90% in December.
The dizzying price increases have been the public’s No. 1 concern in recent months, plunging millions into grave livelihood woes ahead of elections next year. Though external factors such as the economic fallout of the Ukraine war have added to the inflation surge, President Recep Tayyip Erdogan is seen as primarily responsible for the problem, which is casting a big cloud of uncertainty over the country, both economically and politically.
Back in September, when annual inflation stood at about 20%, Erdogan pressured the central bank to lower its 19% policy rate, insisting on the unorthodox view that high interest rates are the cause of high inflation. The bank’s four cuts in as many months brought the benchmark rate to 14% in December. The controversial policy sent the Turkish lira into a tailspin and fueled dollarization, with the ensuing spike in inflation spiraling out of the control.
Erdogan, meanwhile, kept assuring the nation that his policy would galvanize the economy and rein in inflation.
In late November, when annual consumer inflation stood at 21.3%, Erdogan maintained that lower interest rates would bring about economic growth by boosting investments, employment, production and exports. “This will manifest itself also in [slowing] inflation at the year-end,” he told public broadcaster TRT. “As I always say, interest rates are the cause and inflation is the result. We are now reducing the interest rates and, God willing, we’ll see inflation decrease as well.”
Contrary to his forecast, consumer inflation jumped to an annual of 36% in December. Yet Erdogan continued to herald a decrease in inflation. Speaking at a rally in the northern city of Giresun in January, he said, “You know of our struggle against interest rates. We have been lowering interest rates … and you should know that inflation, too, will fall.” He boasted also of “not letting inflation crush the people” by raising public-sector salaries and pensions as well as the minimum wage, which was hiked by 50% to 4,250 liras ($286) at the turn of the year.