Erdogan cuts interest rates to boomerang ballot box

Turkish President Recep Tayyip Erdogan is forcing the Central Bank of Turkey to cut interest rates to boost economic growth ahead of the 2023 elections.

But the president’s pursuit of economic expansion through lower borrowing costs and higher credit – a policy that has borne fruit in the past – can work like a boomerang. The imbalances in the economy are growing and threaten to “hit” him at the ballot box, Bloomberg reported on Monday, citing economists.

The Turkish pound has fallen against the dollar this year, making it the worst-performing currency in emerging markets, with inflation rising to almost 20% after the Central Bank of Turkey began cutting interest rates sharply in September. Governor Sahab Kavtzioglu has pointed out that more cuts will come at a time when other emerging markets are increasing borrowing costs to protect their economies from global inflation.

Real estate tycoons and exporters are taking advantage of lower interest rates and the weaker pound, especially in Istanbul, where the boom in the real estate market is in full swing. However, rising inflation in food and rents are squeezing the country’s lower echelons, Erdogan’s traditional voter base, Bloomberg reported.

Hacer Foggo, founder of the Deep Poverty Network, said a growing number of households were unable to meet basic needs such as food and rent. “I have been working in the field for the last 20 years and for the first time I see poverty turning to hunger and people asking for food,” he told Bloomberg.

Turkey’s low-wage earners saw their share of GDP fall by 0.3 percentage points to 5.9% in 2020, while high-wage earners saw their share increase by 1.2 percentage points to 47.5%, Bloomberg reported, citing official data.

“Growth based on credit crunch is problematic. It overheats the economy, fuels inflation, pushes the currency and fails to attract the high-quality resources needed to improve prosperity,” said Güldem Atabay, an economist at Global Source Partners in Constantinople. . “The deterioration of income distribution and poor governance will have political costs.”

Petros Kranias

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