ANKARA, Turkey (AP) \u2014 Turkish President Recep Tayyip\u00a0Erdogan won reelection\u00a0last month despite a battered economy and a cost-of-living crisis that experts say are exacerbated by his unconventional economic policies.<\/p>\n\n\n\n
The longtime leader appointed an internationally respected former banker as finance and treasury minister and on Friday named a former co-CEO of a U.S.-based bank as\u00a0head of the central bank.<\/p>\n\n\n\n
But lingering\u00a0uncertainty over Erdogan\u2019s economic direction\u00a0and an apparent move to loosen government controls of foreign currency exchanges have led\u00a0Turkey\u2019s currency to plunge to record lows\u00a0against the U.S. dollar this week.<\/p>\n\n\n\n
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\u00a0struggling to afford basics like housing\u00a0and food amid high inflation.<\/p>\n\n\n\n
\u201cI am anxious. I am unhappy. Soon my income won\u2019t pay the rent,\u201d said Sureyya Usta, a 63-year-old who lives in Ankara.<\/p>\n\n\n\n
Here\u2019s a look at the falling value of the lira, what lies ahead for the economy and how people have been affected:<\/p>\n\n\n\n
ERDOGAN\u2019S ECONOMIC POLICIES<\/p>\n\n\n\n
Turkey has been plagued by a\u00a0currency crisis\u00a0and skyrocketing inflation since 2021, which economists say are the result of Erdogan\u2019s unorthodox belief that raising interest rates will increase inflation.<\/p>\n\n\n\n
Conventional economic thinking \u2014 and the\u00a0approach being taken by central banks\u00a0around the world \u2014 calls for the opposite:\u00a0rate hikes to control price spikes.<\/p>\n\n\n\n
Erdogan has exerted pressure on Turkey\u2019s central bank to lower borrowing costs.<\/p>\n\n\n\n
The bank has\u00a0cut its key policy rate\u00a0from 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.<\/p>\n\n\n\n
In other policy considered to be unorthodox, economists say the government aggressively intervened in the markets to\u00a0prop up the lira ahead of the elections, depleting Turkey\u2019s foreign currency reserves to keep the exchange rate under control.<\/p>\n\n\n\n
\u201cPressure over the lira had been high for some time, but excessive interventions by the central bank was preventing\u201d the currency from skyrocketing in recent weeks or months, said Ozlem Derici Sengul, an economist at the Istanbul Spinn Consultancy.<\/p>\n\n\n\n
A RETURN TO \u2018RATIONAL GROUND\u2019?<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Simsek said Turkey had no other option but to return to \u201crational ground.\u201d In a sign that Erdogan\u2019s new administration might pursue more conventional economic policies, Simsek also said there were no \u201cshortcuts or quick fixes\u201d but vowed to oversee Turkey\u2019s finances with \u201ctransparency, consistency, accountability and predictability.\u201d<\/p>\n\n\n\n
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 U.S.-based bank, becomes Turkey\u2019s first woman central bank governor.<\/p>\n\n\n\n
Economists say, however, that it\u2019s not clear to what extent Erdogan, who has\u00a0ruled the country with a tight grip, will give Erkan and Simsek free rein.<\/p>\n\n\n\n
\u201cThe markets are not convinced yet\u201d of Erdogan\u2019s return to traditional policies, Sengul said. There are uncertainties over whether Erdogan will \u201callow unlimited independence to the central bank and other institutions \u2014 or have another strategy,\u201d she said.<\/p>\n\n\n\n
WHY IS TURKEY\u2019S CURRENCY FALLING?<\/p>\n\n\n\n
The Turkish lira tumbled to record lows against the dollar this week, first falling 7% on Wednesday and then 1.6% on Friday.<\/p>\n\n\n\n
Economists say the sharp slide earlier in the week resulted from the government loosening its controls over the currency following Simsek\u2019s appointment. However, the plunge may have been steeper than what it had anticipated.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
\u201cLoose interventions, combined with some uncertainty, created an excessive depreciation in the lira in one day,\u201d Sengul said about the Wednesday drop. \u201cThe banks are currently intervening in the exchange market, that\u2019s why we will not have another 7% depreciation.\u201d<\/p>\n\n\n\n
HOW ARE PEOPLE AFFECTED?<\/p>\n\n\n\n
High inflation is pinching households and businesses with costlier groceries, utility bills and more. A weaker currency means Turkey, which is dependent on imported raw materials, will have to pay more for everything from energy to grain that are priced in dollars.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
She is worried that this week\u2019s sharp decline in the lira will lead to further price increases and even more financial uncertainty for her.<\/p>\n\n\n\n
\u201cI 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?\u201d Usta said. \u201cI\u2019ve forgotten about going to the theater and the cinema \u2014 or going out to meet friends.\u201d<\/p>\n\n\n\n
Usta says her rent doubled earlier this year, but the owner wants to increase it again. Moving out isn\u2019t an option because rents have skyrocketed even in her low-income neighborhood, she says.<\/p>\n\n\n\n
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, \u201cmarket pricing behavior will dramatically deteriorate.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
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