Why are Turkey and its people struggling with major difficulties in economy?

Why are Turkey and its people struggling with major difficulties in economy? This is certainly a question many (and also our foreign friends) have been trying to find answers to for quite a while?

Indeed, we come across many comments made by our foreign friends on social media such as Facebook and Twitter; Comments that we will try to answer below, to the best of our knowledge.

INCORRECT ADMINISTRATION AND PREFERENCE OF FUNDS USAGE

Well, to start off with (before anything else) we can say the whole thing is out of control anyway – meaning the administration has done a terrible job for “many years”, regardless of how much effort they seem to be spending and measures they claim to be taking for the good of the economy (and Turkish people), now.

One of the major mistakes this administration has made is; “They did not focus on production to increase exports and to be more important to bring down unemployment. Instead they preferred to invest huge amount of funds in infrastructure (roads, bridges and airports etc that an important number of citizens don’t even use) rather than alternatives to boost production. To the contrary they even closed down many factories established during the first decade of the republic.”

They used their preference for construction and trade rather than investment in production and technology.

MAJOR DAMAGE CAUSED DUE TO LOWERING OF INTEREST RATES

Even we put aside the bad management and unbelievable corruption, the major damage was caused when the person in charge of the whole country said “High inflation is the result of high interest rates. As long as I am here to stay I will not allow this and we will lower interest rates so as to bring down inflation as well etc.” (which in reality is exactly to the contrary of globally accepted rules of economics). He did not fail to remind as well by the way, that Islam also ordered this (to bring down interest rates)

RAISING DEMAND FOR FOREIGN CURRENCY

Well, what happened then? People aware of the fact banks did not give good enough interest as compared to actual inflation at the time, started investing their savings in foreign currency (dollar mainly) to ensure their savings did not lose value (against inflation). Consequently the principle of economics that goes “price forms where supply and demand meet” came into effect and excessive demand started pushing the currency rate upwards which in a short time caused the TL to substantially fall against the dollar.

IMPACT OF DEPRECIATING TL ON COSTS AND PRICES

Now when the dollar TL rate goes up, it means price of almost anything in this country “has to” go up as well. Mainly because Turkey is so much dependent on importation of oil (and natural gas) which means the higher the rate the more expensive oil prices in TL become – not to forget we import a large majority of raw material to be used in the industry and even many items of consumption goods.

BURDEN OF HIGH VOLUME OF INTEREST PAYMENTS

On the other hand, another very important problem this country is also coping with is the unbelievable amount of interest it has to pay both abroad (to find dollars) and at home. This is (as expressed by experts) an unbearable burden to put up with.

So to cut a long story short, when all this above come together with immense corruption and bad/wrong usage of funds (such as investment in bridges and airports that the majority of citizens don’t even use most likely, as well as tenders that went to certain construction companies/contractors favored by the government) the picture today turns out to be inevitable.

FINANCIAL MEASURES THAT INTRODUCE ADDITIONAL BURDEN ON CITIZENS AND BUSINESSES

And what is happening today? Well, when you look at it you see they are trying to paint the picture that the Minister of Finance (Mehmet Şimşek) is trying to sort things out and put the economy back into the right track again, by introducing new / additional (and raised) taxes and hikes. However the train is long gone and the only solution the Minister of Finance seems to have found is to squeeze the nation’s throat to find additional/new funds to run his policies.

Apparently, the picture does not seem to be bright for the close future and the more so after the defeat of the current administration in local election in March 2024.