President Erdoğan won elections on the back of an economy that was boosted by cheap credit. Now the bills are coming due and no provision has been made to pay them
President Recep Tayyip Erdoğan’s bizarre utterances about “an operation against Turkey” run by shadowy “interest-rate lobbies” and “bullies of the global system” cannot hide the fact his own policies are behind the lira’s precipitous slide. It’s true that a strange spat over a detained American pastor was used as a pretext by the Trump administration to impose punitive tariffs on Turkish steel and aluminium imports. This contributed to turning the lira’s disorderly retreat on the markets into a chaotic rout. But Turkey’s crisis was made at home.
The problem for Erdoğanomics is that it relies not on facts but on a misplaced belief in the president’s personality to win arguments. Since 2016, Mr Erdoğan has pursued a policy that favoured cheap credit and high growth over high prices. On the surface, this has yielded success: Turkey’s real GDP has grown by more than a third over the past five years – just behind China and India. Despite high inflation, the credit binge made consumers feel rich – helping secure Mr Erdoğan the newly created post of all-powerful president. Yet the Turkish strongman has traded his nation’s sovereignty in this dash for growth. Under his rule, Turkish banks and companies racked up debt denominated in US dollars. They could do so because central banks around the world were pumping money to stimulate their economies after the global financial crisis.