عربي English Türkçe اردو فارسى
Logo
Latest News
Features

Why Türkiye’s Currency Is Crashing After Erdogan Got Reelected 

People buy simit, Türkiye’s ubiquitous pretzel-like snacks, at Eminonu commercial area in Istanbul, Türkiye, Wednesday, June 7, 2023. (AP)
People buy simit, Türkiye’s ubiquitous pretzel-like snacks, at Eminonu commercial area in Istanbul, Türkiye, Wednesday, June 7, 2023. (AP)
TT
20
TT

Why Türkiye’s Currency Is Crashing After Erdogan Got Reelected 

People buy simit, Türkiye’s ubiquitous pretzel-like snacks, at Eminonu commercial area in Istanbul, Türkiye, Wednesday, June 7, 2023. (AP)
People buy simit, Türkiye’s ubiquitous pretzel-like snacks, at Eminonu commercial area in Istanbul, Türkiye, Wednesday, June 7, 2023. (AP)

Turkish President Recep Tayyip Erdogan won reelection last month despite a battered economy and a cost-of-living crisis that experts say are exacerbated by his unconventional economic policies.

The longtime leader appointed an internationally respected former banker as finance and treasury minister and on Friday named a former co-CEO of a US-based bank as head of the central bank.

But lingering uncertainty over Erdogan’s economic direction and an apparent move to loosen government controls of foreign currency exchanges have led Türkiye’s currency to plunge to record lows against the US dollar this week.

The Turkish lira has now weakened by around 20% against the dollar since the start of the year. It has raised fears of even higher prices for people already struggling to afford basics like housing and food amid high inflation.

"I am anxious. I am unhappy. Soon my income won’t pay the rent," said Sureyya Usta, a 63-year-old who lives in Ankara.

Here’s a look at the falling value of the lira, what lies ahead for the economy and how people have been affected:

Erdogan’s economic policies

Türkiye has been plagued by a currency crisis and skyrocketing inflation since 2021, which economists say are the result of Erdogan’s unorthodox belief that raising interest rates will increase inflation.

Conventional economic thinking — and the approach being taken by central banks around the world — calls for the opposite: rate hikes to control price spikes.

Erdogan has exerted pressure on Türkiye’s central bank to lower borrowing costs.

The bank has cut its key policy rate from around 19% in 2021 to 8.5% now, even as inflation hit a staggering 85% last year. Inflation eased to 39.5% last month, according to official figures, but an independent group says the true number is more than double that.

In other policy considered to be unorthodox, economists say the government aggressively intervened in the markets to prop up the lira ahead of the elections, depleting Türkiye’s foreign currency reserves to keep the exchange rate under control.

"Pressure over the lira had been high for some time, but excessive interventions by the central bank was preventing" the currency from skyrocketing in recent weeks or months, said Ozlem Derici Sengul, an economist at the Istanbul Spinn Consultancy.

A return to ‘rational ground’?

Hours after being sworn in, Erdogan announced that Mehmet Simsek, a former Merrill Lynch banker who had previously served as his finance minister and deputy prime minister, would return to the Cabinet after a five-year break from politics.

Simsek said Türkiye had no other option but to return to "rational ground." In a sign that Erdogan’s new administration might pursue more conventional economic policies, Simsek also said there were no "shortcuts or quick fixes" but vowed to oversee Türkiye’s finances with "transparency, consistency, accountability and predictability."

In another sign, Erdogan on Friday appointed Hafize Gaye Erkan to lead the central bank, taking over from the current chief who has championed rate cuts since 2021. Erkan, a former co-CEO of a US-based bank, becomes Türkiye’s first woman central bank governor.

Economists say, however, that it's not clear to what extent Erdogan, who has ruled the country with a tight grip, will give Erkan and Simsek free rein.

"The markets are not convinced yet" of Erdogan’s return to traditional policies, Sengul said. There are uncertainties over whether Erdogan will "allow unlimited independence to the central bank and other institutions — or have another strategy," she said.

Why is Türkiye’s currency falling?

The Turkish lira tumbled to record lows against the dollar this week, first falling 7% on Wednesday and then 1.6% on Friday.

Economists say the sharp slide earlier in the week resulted from the government loosening its controls over the currency following Simsek's appointment. However, the plunge may have been steeper than what it had anticipated.

The lira weakened by a limited 0.5% on Thursday amid reports that state banks were asked to resume selling foreign currency to prop up the currency. On Friday, the lira depreciated to another all-time low of 23.54 to the dollar.

"Loose interventions, combined with some uncertainty, created an excessive depreciation in the lira in one day," Sengul said about the Wednesday drop. "The banks are currently intervening in the exchange market, that’s why we will not have another 7% depreciation."

How are people affected?

High inflation is pinching households and businesses with costlier groceries, utility bills and more. A weaker currency means Türkiye, which is dependent on imported raw materials, will have to pay more for everything from energy to grain that are priced in dollars.

Usta, the 63-year-old from Ankara, works at a firm that sells cash registry machines to boost her retirement pension but still struggles to pay her living expenses amid high inflation.

She is worried that this week’s sharp decline in the lira will lead to further price increases and even more financial uncertainty for her.

"I keep cutting back and cutting back so that I can afford to live, so I can pay for gas and electricity. But how much more can I cut back?" Usta said. "I’ve forgotten about going to the theater and the cinema — or going out to meet friends."

Usta says her rent doubled earlier this year, but the owner wants to increase it again. Moving out isn't an option because rents have skyrocketed even in her low-income neighborhood, she says.

Sengul, the economist, says the one-day currency shock is unlikely to have a huge impact. If, however, the depreciation is not contained, she warns, "market pricing behavior will dramatically deteriorate."

Most Viewed

 
Features

10 Years after Europe's Migration Crisis, the Fallout Reverberates in Greece and Beyond

File photo: Migrants of African origin trying to flee to Europe are crammed on board of a small boat, as Tunisian coast guards prepare to transfer them onto their vessel, at sea between Tunisia and Italy, on August 10, 2023. (Photo by FETHI BELAID / AFP)
File photo: Migrants of African origin trying to flee to Europe are crammed on board of a small boat, as Tunisian coast guards prepare to transfer them onto their vessel, at sea between Tunisia and Italy, on August 10, 2023. (Photo by FETHI BELAID / AFP)
TT
20
TT

10 Years after Europe's Migration Crisis, the Fallout Reverberates in Greece and Beyond

File photo: Migrants of African origin trying to flee to Europe are crammed on board of a small boat, as Tunisian coast guards prepare to transfer them onto their vessel, at sea between Tunisia and Italy, on August 10, 2023. (Photo by FETHI BELAID / AFP)
File photo: Migrants of African origin trying to flee to Europe are crammed on board of a small boat, as Tunisian coast guards prepare to transfer them onto their vessel, at sea between Tunisia and Italy, on August 10, 2023. (Photo by FETHI BELAID / AFP)

Fleeing Iran with her husband and toddler, Amena Namjoyan reached a rocky beach of this eastern Greek island along with hundreds of thousands of others. For months, their arrival overwhelmed Lesbos. Boats fell apart, fishermen dove to save people from drowning, and local grandmothers bottle-fed newly arrived babies.

Namjoyan spent months in an overcrowded camp. She learned Greek. She struggled with illness and depression as her marriage collapsed. She tried to make a fresh start in Germany but eventually returned to Lesbos, the island that first embraced her. Today, she works at a restaurant, preparing Iranian dishes that locals devour, even if they struggle to pronounce the names. Her second child tells her, “‘I’m Greek.’”

“Greece is close to my culture, and I feel good here,” Namjoyan said. “I am proud of myself.”

In 2015, more than 1 million migrants and refugees arrived in Europe — the majority by sea, landing in Lesbos, where the north shore is just 10 kilometers (6 miles) from Türkiye. The influx of men, women and children fleeing war and poverty sparked a humanitarian crisis that shook the European Union to its core. A decade later, the fallout still reverberates on the island and beyond.

For many, Greece was a place of transit. They continued on to northern and western Europe. Many who applied for asylum were granted international protection; thousands became European citizens. Countless more were rejected, languishing for years in migrant camps or living in the streets. Some returned to their home countries. Others were kicked out of the European Union.

For Namjoyan, Lesbos is a welcoming place — many islanders share a refugee ancestry, and it helps that she speaks their language. But migration policy in Greece, like much of Europe, has shifted toward deterrence in the decade since the crisis. Far fewer people are arriving illegally. Officials and politicians have maintained that strong borders are needed. Critics say enforcement has gone too far and violates fundamental EU rights and values.

“Migration is now at the top of the political agenda, which it didn’t use to be before 2015,” said Camille Le Coz Director of the Migration Policy Institute Europe, noting changing EU alliances. “We are seeing a shift toward the right of the political spectrum.”

A humanitarian crisis turned into a political one

In 2015, boat after boat crowded with refugees crashed onto the doorstep of Elpiniki Laoumi, who runs a fish tavern across from a Lesbos beach. She fed them, gave them water, made meals for aid organizations.

“You would look at them and think of them as your own children," said Laoumi, whose tavern walls today are decorated with thank-you notes.

From 2015 to 2016, the peak of the migration crisis, more than 1 million people entered Europe through Greece alone. The immediate humanitarian crisis — to feed, shelter and care for so many people at once — grew into a long-term political one.

Greece was reeling from a crippling economic crisis. The influx added to anger against established political parties, fueling the rise of once-fringe populist forces.

EU nations fought over sharing responsibility for asylum seekers. The bloc’s unity cracked as some member states flatly refused to take migrants. Anti-migration voices calling for closed borders became louder.

Today, illegal migration is down across Europe While illegal migration to Greece has fluctuated, numbers are nowhere near 2015-16 figures, according to the International Organization for Migration. Smugglers adapted to heightened surveillance, shifting to more dangerous routes.

Overall, irregular EU border crossings decreased by nearly 40% last year and continue to fall, according to EU border and coast guard agency Frontex.

That hasn’t stopped politicians from focusing on — and sometimes fearmongering over — migration. This month, the Dutch government collapsed after a populist far-right lawmaker withdrew his party’s ministers over migration policy.

In Greece, the new far-right migration minister has threatened rejected asylum seekers with jail time.

A few miles from where Namjoyan now lives, in a forest of pine and olive trees, is a new EU-funded migrant center. It's one of the largest in Greece and can house up to 5,000 people.

Greek officials denied an Associated Press request to visit. Its opening is blocked, for now, by court challenges.

Some locals say the remote location seems deliberate — to keep migrants out of sight and out of mind.

“We don’t believe such massive facilities are needed here. And the location is the worst possible – deep inside a forest,” said Panagiotis Christofas, mayor of Lesbos’ capital, Mytilene. “We’re against it, and I believe that’s the prevailing sentiment in our community.”

A focus on border security

For most of Europe, migration efforts focus on border security and surveillance.

The European Commission this year greenlighted the creation of “return” hubs — a euphemism for deportation centers — for rejected asylum seekers. Italy has sent unwanted migrants to its centers in Albania, even as that faces legal challenges.

Governments have resumed building walls and boosting surveillance in ways unseen since the Cold War.

In 2015, Frontex was a small administrative office in Warsaw. Now, it's the EU's biggest agency, with 10,000 armed border guards, helicopters, drones and an annual budget of over 1 billion euros.

On other issues of migration — reception, asylum and integration, for example — EU nations are largely divided.

The legacy of Lesbos

Last year, EU nations approved a migration and asylum pact laying out common rules for the bloc's 27 countries on screening, asylum, detention and deportation of people trying to enter without authorization, among other things.

“The Lesbos crisis of 2015 was, in a way, the birth certificate of the European migration and asylum policy,” Margaritis Schinas, a former European Commission vice president and a chief pact architect, told AP.

He said that after years of fruitless negotiations, he's proud of the landmark compromise.

“We didn’t have a system,” Schinas said. “Europe’s gates had been crashed."

The deal, endorsed by the United Nations refugee agency, takes effect next year. Critics say it made concessions to hardliners. Human rights organizations say it will increase detention and erode the right to seek asylum.

Some organizations also criticize the “externalization” of EU border management — agreements with countries across the Mediterranean to aggressively patrol their coasts and hold migrants back in exchange for financial assistance.

The deals have expanded, from Türkiye to the Middle East and across Africa. Human rights groups say autocratic governments are pocketing billions and often subject the displaced to appalling conditions.

Lesbos still sees some migrants arrive Lesbos' 80,000 residents look back at the 2015 crisis with mixed feelings.

Fisherman Stratos Valamios saved some children. Others drowned just beyond his reach, their bodies still warm as he carried them to shore.

“What’s changed from back then to now, 10 years on? Nothing,” he said. “What I feel is anger — that such things can happen, that babies can drown.”

Those who died crossing to Lesbos are buried in two cemeteries, their graves marked as “unknown.”

Tiny shoes and empty juice boxes with faded Turkish labels can still be found on the northern coast. So can black doughnut-shaped inner tubes, given by smugglers as crude life preservers for children. At Moria, a refugee camp destroyed by fire in 2020, children’s drawings remain on gutted building walls.

Migrants still arrive, and sometimes die, on these shores. Lesbos began to adapt to a quieter, more measured flow of newcomers.

Efi Latsoudi, who runs a network helping migrants learn Greek and find jobs, hopes Lesbos’ tradition of helping outsiders in need will outlast national policies.

“The way things are developing, it’s not friendly for newcomers to integrate into Greek society,” Latsoudi said. "We need to do something. ... I believe there is hope.”