Jakarta, CNBC Indonesia – The Turkish economy is in a state of chaos with skyrocketing inflation, rising debt and a free-falling currency exchange rate. This makes the financial system of this Muslim-majority country in Europe on the verge of an economic crisis.
The crisis that has been going on since 2018 is now getting worse.
Almost 70% of citizens in Turkey find it difficult to meet their food needs and pay their rent. This is because the increase in the cost of living was not matched by their income, according to a survey conducted by the Yöneylem Social Research Center in August.
Turkey’s inflation rate reached a staggering 83.5% last September, the highest in more than two decades and the most consecutive increase in the past 16 months. This figure is the second highest in the world, after Venezuela (114%) and above Argentina (78.5%).
Turkey’s inflation rate is also dubious, as a number of independent analysts estimate that inflation is already more than double that figure, or higher than Venezuela. All imported goods are expensive in Turkey, especially food and materials that depend on abroad, where the European energy crisis is exacerbating the situation.
Their current account balance was in deficit, reaching $ 3.11 billion in August, three times the same month last year. This is the tenth time in a row that Turkey’s current account deficit shows how much they depend on foreign commodities for a living.
Meanwhile, the exchange rate of the lira against the US dollar is in free fall this year after having steadily weakened since 2013. During this year alone it has weakened by almost 40%, from the range of TRY13 at the beginning of the year. year at TRY18.6 today (Tuesday / 25/10/2022).
The state debt condition is no less deteriorated, making this country already plunged into a debt crisis. The public debt to international creditors is $ 451 billion, of which the short-term debt is $ 185 billion.
The strengthening trend of the US dollar and rising interest rates are expected to further aggravate the situation in the future.
Erdoan’s taking as a “dictator”
Still signs of Turkey’s recovery from the crisis Invisible. The country is centrally led by Recep Tayyip Erdoga president since 2014. Previously, he was Prime Minister since 2003 and was the leader of the ruling party, Adalet ve Kalkınma Partisi (AKP).
One of his controversial policies is that all economic decisions, including monetary decisions in the Turkish central bank (CBRT), are in his hands. Contrary to all central bank decisions in the world today, Erdoan continues to cut the benchmark interest rate, regardless of whether inflation is above 80%. ‘
Anyone who disagrees with him is fired.
Last week, CBRT even cut its benchmark interest rate by 150 basis points from 12% to 10.5% on the grounds that it wants to maintain economic growth and increase exports.
Erdoan thinks rising interest rates will trigger inflation, calling rate hikes the “mother of all demons”
Many see this as a politicization of monetary policy because Erdogan’s fate will be determined in the election year of 2023. He likes to use government funds and low interest rates to keep his vote.
CNBC Indonesia research group
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