How Turkey’s plummeting currency is impacting Australians


“We will probably be leaving to stay in a nice hotel a little longer than originally planned,” says Ms. Ozer.

But the couple are only too aware that their win is a pain for so many others among Turkey’s 85 million people.

People check rates on a currency exchange office in Istanbul, Turkey, Nov. 23, 2021.

There, the official inflation rate soared to 21%, as a weak currency pushed up the price of imported goods.

This is creating an economic crisis, with minimum wage earners being the hardest hit.

These days, outside of normally bustling Istanbul, come images of people lining up for cheap bread.

“My family is constantly helping the people around them,” says Ms. Ozer.

“Some of them say they can’t pay the bills. My relatives buy food for some families and clothes for others. All of a sudden, the people who said they were doing well are now just below the poverty line.

“Unorthodox economic approach”

Turkey’s currency has lost about 50 percent of its value against the US dollar this year – about half of that in November alone.

But the free fall began much earlier, with economists pointing to years of unconventional inflation theories pursued by President Recep Tayyip Erdogan.

At the end of 2017, inflation in Turkey was approaching 12% – but since then the president has consistently rejected the traditional economic practice of raising central bank interest rates to counter rising inflation.

Instead, he argued that higher rates fuel inflation.

Interest rates have fallen from 19% to 15% since September, with another cut expected later this month.

Turkish President Recep Tayyip Erdogan.

Source: Turkish Presidency

“These really describe the unorthodox economic approach of Erdogan’s government,” says Anas Iqtait, from the Center for Arab and Islamic Studies at the Australian National University.

“It’s very difficult to explain the reasons for falling interest rates, especially when inflation rates are high, but this is the policy Erdogan has pursued.”

Since 2019, the president has dismissed three central bankers who were trying to raise interest rates.

Watching, much-needed foreign investors lost faith in the pound and a central bank under presidential intervention, so they bought fewer pounds to invest in Turkey, further weakening the currency.

Conservative Erdogan has previously cited religion as the rationale for his approach, calling interest rates “the mother and father of all evil” in a 2018 interview.

According to financial principles rooted in Islam, charging interest on debts is considered “riba” or usury, and therefore, a sin.

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“Basically there is no economic sense at all,” says Veysel Ulusoy, professor of economics at Yeditepe University in Istanbul.

“By lowering interest rates he is trying to get clerics to stay with him during a process that ends with an election.”

Presidential elections are scheduled for 2023.

Professor Ulusoy heads an independent research group that has published alternative inflation data, calculating that inflation is closer to 60% than to 21.

In February, the government’s main statistics agency, the Turkish Statistics Agency, filed a criminal complaint against the group, which the then finance minister accused of disseminating misleading data.

Professor Ulusoy says he hopes there will be a case to be taken to court.

“The official rate does not match the behavior of people who save their money, nor the behavior of investors,” he says.

The “China of Europe”

Mr Erdogan said lower interest rates and a weaker currency should accelerate economic growth, exports and jobs.

Nev Bagriyanik, who runs a Turkish dessert bar in west-central Sydney, says he sees it making sense, having worked in textiles in Turkey in the early 2000s.

“When the pound was low, business was good because we exported a lot. We were a very interesting country, ”he says.

“Geographically, Turkey is very well positioned to supply Europe with manufacturing, so it could be like a little China. “

Nev Bagriyanik worked in the textile industry in Turkey in the early 2000s.

Source: SBS News / Rena Sarumpaet

However, Dr Iqtait sees key differences from that time, with today’s broader inflation and rising energy costs and other manufacturing costs outweighing any competitive advantage. that can be drawn from a weaker currency.

“So it is very likely that what will happen,” he said, “is that the costs accumulated by Turkish manufacturers will make it extremely difficult for them to remain competitive and achieve one of Erdogan’s goals, which is to become the China of Europe. “

Swings and roundabouts

Melbourne travel agent Marcus Falay is feeling the currency crisis in a different way.

In 2013, he bought an apartment for his retired mother in central Cappadocia for around $ 110,000.

In Australian dollar terms, he is now seriously underwater on this investment.

Melbourne Travel Agency Marcus Falay

Source: SBS News / Rena Sarumpaet

But at the same time, there are now new buying opportunities.

“You could spend as little as $ 50,000 and buy a nice 2 or 3 bedroom apartment in various parts of the country,” Falay said.

But the situation remains volatile, and he says the local Turkish community is being cautious.

“This could be an opportunity for the real investor – and now is the perfect time for him to invest some money in it.

“But at the same time, we’re seeing people refraining from making any of these big investments right now.”


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