The Turkish economy is at a crossroads and the “lira” to decline further

The presidential and parliamentary elections in Turkey raised the level of uncertainty about the Turkish economy and the national currency, after Turkey headed to a second round of the electoral race between Turkish President Recep Tayyip Erdogan and the People’s Alliance candidate, Kemal Kilicdaroglu.

Postponing the presidential decision to a second round on May 28 opened the door for observers in Turkey and abroad to draw scenarios for the future of the Turkish economy and the national currency, if any of the opposing competitors won their economic plans.

The convergence of the electoral outcome of both Erdogan and Davutoglu has raised many questions about the issue of Turkey continuing its unconventional economic policies adopted during Erdogan’s era, in return for the possibility of returning to its former free economy, which is what the Turkish opposition promises.

sharp fluctuations

After the Turkish lira lost nearly 30 percent of its value against the dollar last year, as a result of concerns about the monetary policy of the Erdogan government, and the repercussions of the war in Ukraine, many questions were raised about the future of the Turkish economy and the fate of the lira against the dollar. While the Turks pin their hopes on economic and monetary breakthroughs following the presidential elections, experts and international institutions suggest that the Turkish economy will witness sharp fluctuations, at least in the short term, regardless of the outcome of the upcoming elections in its second round on May 28.

As for the medium and long term, the highly competitive presidential elections may constitute a crossroads for the Turkish economy, with the exclusion of any fundamental changes in the path of the lira in the short term, whatever the outcome of the elections.

JPMorgan analysts expect that regardless of the outcome of the presidential elections in Turkey, macro adjustments will be made based on the assumption of how close to more traditional policies such as raising interest rates to curb inflation. These expectations are offset by the hypothesis of continuing the strict interest policy, which may initially drop the lira to record about 26 to 30 lira against the dollar by the end of this year, up from 20 lira to the dollar now.

division in Türkiye

It seems clear that the vertical division in Turkey, which is based on two economic models that do not meet, is based on the non-traditional policy that is applied and its future is drawn by the ruling party, and is based on enhancing production and export and reducing interest, while the opposition draws the second model represented by raising interest rates according to more traditional policies, and following policies New cash to fight inflation and free the central bank from political interference.

In an economic reading of the impact of the presidential election results on the Turkish economy, due to the difference between the current economic policy adopted by the Erdogan government and that advocated by the opposition, Kamal Kilicdaroglu, the director of the Istanbul Institute, Dr. Bakir Atagan, explains in an interview with Al-Modon that the economic solutions for Erdogan’s policy differs from what Kilicdaroglu calls for, bearing in mind that the latter was one of the strongest opponents of the previous economic policies, which were approved throughout the previous governments headed by Erdogan, when Ali Babacan was Minister of Economy and sponsor of economic policy, “Today, unfortunately, Kilicdaro is allied with Ali Baba Jean himself, calling for his economic policy, which means that what Kilicdaroglu previously criticized and opposed has become today a demand and a goal for him,” Atagan says.

From here, Atagan believes that the Turkish opposition’s economic project is based on fallacies. “President Erdogan made fundamental changes in his previous economic policy, and recently adopted the path of the Chinese approach, which is based on reducing interest rates, enhancing domestic production, securing job opportunities, combating unemployment, and increasing the level of exports.”

He says that the economic approach that was adopted earlier in relation to Babacan and what the Turkish opposition calls for today, led by Kilicdar, is based on opening the door to import at the expense of local production, and increasing interest in line with global financial policies, which eliminate local production. It has recently proven its failure, as evidenced by the collapse of US banks due to the rising interest policy.

Atagan describes what the Turkish opposition today is calling for a free economy as “deception”, justifying Erdogan’s government’s intervention in monetary policy by saying: “European countries, the United States of America and other developed countries interfere directly with central banks and monetary policy.”

For his part, the Turkish opposition researcher Islam Azkan criticizes the Turkish government’s economic policy, and says in an interview with Al-Modon that the Turkish economy is currently in crisis. This is documented by figures from international institutions, and the economic crisis may deepen further, according to Azkan, “if Erdogan’s team wins the presidential elections after its economic policies prove to be a failure.”

According to Azkan, “Neither Erdogan nor his party, the Justice and Development Party, have the ability to formulate a comprehensive solution to the Turkish economic crisis. All of the authority’s experiments and attempts to get rid of the economic impasse from which Turkey is suffering have failed.”

The future of the Turkish lira

Regarding the future of the Turkish lira from the point of view of loyalists to the Erdogan government, Atagan refers to the changes that have taken place in Turkey recently, based on the new economic policies, which will bear fruit at the beginning of next year 2024. It requires a period of time to prove its usefulness. It is expected that the Turkish economy will improve significantly from 2024, if Erdogan’s economic policy continues, which is certain, according to Atagan.

As for the Turkish lira, it is not surprising that its value has declined in the past months. This may continue until the end of this year, before it begins to gradually recover its value early next year. Atagan summarizes the stage of the lira’s decline as a period of radical transformation in Turkey. Erdogan’s economic plan calls for a gradual shift to production policy and interest reduction.

As for the Turkish opposition, it warns of the impact of Erdogan’s victory, if it happens, on the fate of the national currency, and Azkan says that the Turkish financial markets are not enthusiastic about the continuation of Erdogan’s economic policy. Therefore, change is the only solution for the Turkish economy to get out of the current impasse. Azkan cites the assessment and reading of impartial international and local institutions, in terms of economic failure. This is not limited to the Turkish opposition.

The value of shares on the Turkish Stock Exchange declined with Erdogan’s shares advancing in the first round elections. This is an indication of the negative impact of Erdogan’s policy on the Turkish economy, Azkan says, recalling that the situation of the Turkish lira today is very bad against the dollar due to several factors, but the Turkish government’s intervention in the market is what curbs the rise of the dollar against the lira. Without that, the price of the dollar would have risen to very high levels. Therefore, opponents of Erdogan’s policy expect a major collapse of the exchange rate if he wins the presidential elections.

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