CENTRAL NEWS
The Turkish lira hit its weakest ever level against the US dollar on August 7, trading at 7.36 at one point, having lost nearly 20% of its value since the beginning of the year. However, the situation is not new. The lira has been on life support for the past two years and the economy is tired after all of Erdogan’s expensive adventures.
Understanding Turkish economy:
Currently, the global economy is in a rough place because of the Covid-19 pandemic as well as many other internal factors which we will probably never know about. Turkey is in a particularly difficult place because, firstly, Erdogan has emptied the reserves of the state-bank, and secondly because the dollar is down 9% by the investors who were unimpressed by Trump’s handling of the pandemic. Not to mention, the disease itself has been forcing the boundaries of what little Liras Erdogan hasn’t yet spent. Health sectors are being pushed to their limits, and the workers, the ones who haven’t yet been killed in a work-accident, are unemployed. Not to mention, international tourism, which is forecast by the OECD to be down by 60% this year, has determining financial consequences for the likes of Turkey.
During the first four weeks of the crisis, a third of the investments into emerging nations’ bonds over the past four years were sold. This was four times the capital outflows of the 2007-09 financial crisis. It has spelt disaster for these countries, who rely on this capital for financing domestic investment and hence economic growth. Countries that are constantly in a deficit because they spend more than they make (or import more than they export), struggle to make ends meet until the end of the year.
Especially for countries like Turkey that persistently run current account deficits, meaning they import more than they export, this drying up of external finance is a strong sign of a crisis (when a country can no longer pay for imports). This is where the investor that keeps the country’s economy upright starts to lose confidence, causing the local currency to collapse because it can’t cover its debts or pay for essential imports. Turkey is one of these countries.
Fragile Five
According to an article shared, by The New York Times, Turkey has been considered among the riskiest emerging markets in recent years, categorised as one of the “fragile five” along with India, Brazil, South Africa and Indonesia. Turkey has earned its place for running large current-account deficits, and although there have been improvements on and off, it has continually relied on external financing (the money of other countries and investors) as its engine of growth.
Turkey has long survived by attracting strong capital inflows, prompting strong credit expansion which in turn encourages economic growth – but only if these credits are paid back.
Elections
Since 2014, Turkey has had at least one election every year except 2016. There were local elections in 2014, two general elections in 2015, a referendum on the government system in 2017, general and parliamentary elections in 2018, and local elections in 2019. This has put almost continuous pressure on the authorities to spend money (not to mention that funds are being looted from hand to hand till there is nothing left) and keep stimulating the economy with interest rates low enough to encourage more borrowing. Thus, borrowers are made to believe that the economic situation of their country is stable.
Options
According to The Conversation, Turkey could either obtain more foreign currency by borrowing from international institutions like the IMF, or raise interest rates (an option that Erdogan has refused from the beginning).
The option of borrowing represents a total embarrassment for the AKP regime, which has boasted to the people of northern Kurdistan and Turkey that Turkey’s economy is so great that it is no longer a country which needs IMF assistance.
In fact, in November 2019, palace clown Erdogan told the people that “The IMF asked us for a debt of $5 billion. I told the friends to give it. Then they looked at how crazy these Turks are and decided not to take it.”
The other option is to adopt capital controls to prevent foreign currency outflows, a form of guarantee, so that not all the valuable assets of the country are lost. This is the policy which Erdogan and his half-witted son-in-law (also minister of Economy) have decided to follow. Again, to be able to stay in power, the fascist duo are using their usual ‘fear’ card to push society into submission, rather than being transparent about the situation of the economy.
Turkey’s Ministry of Interior, by sending notices to the governors of 32 provinces, claimed that the PKK will maliciously exchange a large amount of foreign currency to impact the economy and that local people should report all instances of large currency exchanges to the police.
On the same notice, the terrorist ministry also referred to an embargo on basic needs.
It was pointed out that an application reminiscent of the food embargo of 1990s will be implemented. The notice continued to create fear with the following statements:
“Detailed searches will be made of suspicious vehicles, especially pickup trucks, vans, minibuses, against the logistical supply activities that may be made to the members of the organization (PKK); focusing on the control of vehicles carrying supplies, living materials, picnic / kitchen gas cylınders, etc.; increasing the number of patrols on village, field, and side roads will be carried out. ”
As the Turkish state is aware, the PKK guerrillas operating in northern Kurdistan do not cover logistical needs from supermarkets. In reality, the lowly government is creating the foundations of imposing a disguised food ration, without losing power.
Food rations are imposed in times of economic crisis as import power is low due to built-up debts. This would mean that existing products would need to be maintained for a longer amount of time till funds are boosted, to be able to pay for the goods. This is a tactic rather than a strategy, of delaying the problem even further.
Nevertheless, it may not come as a surprise if the fascist Erdogan regime starts to imprison people with charges of terrorism, for buying food.
NC//Firaz Dag
