The lira has lost more than 35 percent of its value against the US dollar this year, prompting concerns that Turkey’s economy, which is heavily reliant on foreign currency loans, could affect other emerging markets. Though still weak, the currency picked up against the dollar on Wednesday after Qatar pledged investment in Turkey following talks with President Recep Tayyip Erdogan in Ankara.
Here are six things you need to know about the crisis:
What’s happening to the Turkish lira?
The Turkish lira stood at around 5.84 against the US dollar on Friday, two days after Qatar announced a $15bn investment into the country’s financial markets and banks. Earlier this week, the currency was at a record low of 7.24 against the US dollar. While all of this has happened, inflation has reached 15.6 percent, increasing the cost of everyday items.
What’s behind the crisis?
The crisis began days after US President Donald Trump announced via Twitter a doubling of steel and aluminium tariffs on Turkey, as Washington pushed Ankara to release Evangelical Christian pastor Andrew Brunson, who is being held on terrorism charges. On Wednesday, Turkey doubled tariffs on some imports from the US – such as passenger cars, alcohol and tobacco. President Erdogan has blamed the lira’s fall on an “operation against Turkey” rather than prevailing economic conditions, calling it “deliberate attacks”. Analysts agree, saying the dispute with the US has contributed to the lira’s plunge.
OPINION How could Turkey overcome its currency woes? Erkin Sahinoz by Erkin Sahinoz Soner Cagaptay, the director of Turkish research programme at the Washington Institute, said the US had an “arsenal of economic sanctions” ready to deploy against Turkey, which he believed Trump would escalate until Brunson is released.
“Such a move will further feed Erdogan’s narrative that ‘the West is attacking us’.” Aly-Khan Satchu, a financial analyst and CEO of Rich Management, a financial and political advisory firm, said the “US dollar has been weaponised – either deliberately or by design”. “What we’re seeing is the reduction of dollars being supplied into the system and the end of quantitative easing,” he told Al Jazeera in an interview from the Kenyan capital, Nairobi. “When the global markets were flooded with cheap and free dollars, everybody got terribly excited, particularly across emerging and frontier markets, and now we have seen a whiplash turn here,” Satchu added.
What does this mean for Turks?
According to economic experts, in the short term, the lira’s slide will increase inflation, which will hurt Turkey’s poor. The Financial Times reported on July 27: “The Turkish bakers’ federation on Thursday announced a 15 percent increase in bread prices. The cost of an iPhone is up by a quarter.”
Businesses are also concerned about higher import prices.
In June, Charles Robertson, chief global economist at Renaissance Capital, said that economic growth will be slow, “at best two to three percent this year. And the population is growing [at the rate of] one to two [percent], so per capita, that’s really not much of a gain.” “These are tough times for Turks now,” he told Al Jazeera’s Counting the Cost programme. However, it is worth noting that in 2001, a year before Erdogan became prime minister, Turkey’s inflation rate was at 69 percent. On Thursday, it stood at 15.6 percent.