The Turkish Lira is free falling.

It has been weakening for years (from parity to 12 TRY to the dollar), but the 15% fall on Tuesday is causing a lot of pain and concerns.

The causes

• A rampant inflation, around 20% per year.
• A president who has concentrated power in his hands: a new constitution bringing the responsibilities of the prime minister and cabinet into the hands of the president, a purge of opposition and judges, selection of technocrats based on loyalty, repression of the press and freedom in general, an active military campaign against minorities (Kurds), and a move towards a religious state.
• A loss of independence of the central bank, with the sacking of governors who had a different view to President Erdogan’s.
• Instauration of a low rate policy, underpinned by the Muslim faith, despite the rampant inflation and against the opinion of most economists. The policy inflated a vicious circle of inflation and currency devaluation.

The outcome

• The Lira lost 45% this year, and 15% on a single day (Tuesday 11/23/21) after the president insisted on rate cuts.
• House price growth has jumped 35% this year.
• Many companies have borrowed in USD and will likely face default. Who will lend to them now? Apple has now stopped online sales in Turkey.
• Protesters took to the streets over the Thanksgiving break, calling for Erdogan’s resignation.
• Indiscriminate repression of protest, even for women issues.
• Erdogan insisting on his policy, comparing it to the 2016 coup d’état attempt.
• Many suspect it is actually a calculated move to weaken the currency at the expense of population.
• The opposition party voiced fears that the president could declare a state of emergency.

This cannot finish well, economically or socially…

References

• The Guardian, November 23, 2021: Turkish lira sinks to fresh low after Erdoğan insists on interest rate cuts
• CNBC, November 23, 2021: Turkish lira crashes to ‘insane’ historic low after President Erdogan sparks sell-off
• Al Arabiya, November 24, 2021:  Protests in Istanbul, Ankara calling on Erdogan’s govt to resign after lira crash
• The Guardian, November 24, 2021:  Erdoğan gambles on economy amid protests and rocketing inflation
• Greek City Times, November 24, 2021: Protests in Turkey as Lira collapses
• ABC News, November 25, 2021: Turkish police tear-gas women protesting over violence
• Financial Times, November 25, 2021: Turkish anger grows as Erdogan’s ‘economic war’ hits cost of living
• Reuters, November 26, 2021: Erdogan takes another swipe at lira with his defence of low rates