Turkey’s government faces slow growth, record inflation
ISTANBUL - The Turkish government is struggling with record inflation, rising unemployment and a growing sense of crisis among the electorate less than half a year before crucial local elections.
Inflation has soared to a yearly rate of 24.5%, the highest level in 15 years. The country’s central bank raised its inflation expectation for this year from 13.4% to 23.5% and said 2019 will see an inflation rate of 15.2%, up from an estimate of 9.3%. Unemployment stands at 11.1% but is almost twice as high for the 15-24 age bracket, official figures indicate. Trade unions say the real numbers are much higher.
The value of the country’s currency, the lira, has recovered slightly from the sharp drop this year against the US dollar and the euro but investors remain nervous. When Turkish Finance Minister Berat Albayrak, a son-in-law of President Recep Tayyip Erdogan, recently announced tax cuts on cars, white goods and other items to stir demand and fight unemployment, the lira took a new hit because the move fanned doubts about promises of fiscal discipline.
The International Monetary Fund said growth in Turkey will slow to 0.4% next year. Other observers are less optimistic. The rating agency Moody’s predicted a 2% GDP contraction for 2019. Aykut Erdogdu, an opposition lawmaker, told the BirGun newspaper that central bank figures showed that investors had withdrawn approximately $20 billion from Turkey in the first nine months of the year.
Ordinary Turks are feeling the pinch. Car sales were off 76% last month, compared to October 2017, after an annual drop of almost 70% in September. Several well-known brands, among them retail manufacturers and construction firms, have applied for bankruptcy protection. The downturn forced ferry company IDO to stop services between several parts of Istanbul as of December 1.
Even though Erdogan insists there is no crisis in the country, many people beg to differ. In a recent poll, four out of five Turkish respondents said there is a crisis. More than 46% of potential voters asked told the Metropoll polling firm they were concerned that inflation would rise further.
Erdogan’s approval rating dipped to less than 40% for the first time since 2015, Metropoll said. In a survey for Optimar, another polling company, voters named the economy as Turkey’s most important problem, the Hurriyet newspaper reported.
As the economy tightens, some of Erdogan’s trademark policies are coming under scrutiny. The government of the 64-year-old veteran leader has overseen several big infrastructure projects, including new bridges and airports, often using a so-called build-operate-transfer model that lets private companies build and run assets before turning them over to the state.
A recent report by Turkey’s Court of Accounts said the government suffered losses of hundreds of millions of dollars because it had to pay compensation to companies operating two motorway bridges after they generated less revenue through toll payments than expected.
The opposition says the government has failed to steer the country in the right direction. “The government is unable to manage the economy, while the citizen pays the bill,” opposition leader Kemal Kilicdaroglu was quoted as saying.
Kilicdaroglu’s Republican People’s Party (CHP) is the main rival of Erdogan’s ruling Justice and Development Party (AKP) in local elections scheduled for March 31. Although the local vote will not decide Erdogan’s fate as president, the election will include high-profile races, such as mayoral elections in Istanbul, Ankara and Izmir. The AKP’s aim is to hold on to mayoral posts in Istanbul and Ankara; the CHP holds the mayoral post in Izmir.
The elections will be the first political test for Erdogan since Turkey switched from a parliamentary to a presidential form of government this year. Erdogan says the new system will bring stability and economic prosperity but critics argue the opposite is the case.
“The dismal state of the Turkish economy will be Erdogan’s key challenge in the upcoming local elections,” Aykan Erdemir, a senior fellow at the Foundation for Defense of Democracies, a Washington think-tank,” said via e-mail. “Although the electoral playing field is not level and Turkey’s opposition parties are lethargic and divided, Erdogan could still experience a significant drop in votes.
“A similar economic downturn in 2009 also led to the AKP’s worst performance within the last 15 years.”
Erdemir, a former Turkish lawmaker, said he expected Erdogan to pull out all the stops to prevent an economic meltdown before the vote.
“The Turkish president will try anything at his disposal to postpone the imminent economic crash until after the elections, including pumping money into an economy already on steroids,” Erdemir wrote. “Taking advantage of his near-total control of media, he will also try to deflect the electorate’s attention from economic issues to polemics around Turkey’s deep cultural cleavages.”