Turkey, Andrew Mullet, President Recep Tayyip Erdoğan discussed on Monocle 24: The Briefing
This is the briefing with me, Andrew mullet, now much of Europe is presently flinching at gathering inflation the Euro area's rate was circa 7.5% in March. Little sympathy will be forthcoming from people presently attempting to keep up with the cost of living in turkey, however, where already rampant inflation has this week's surged further and cleared a yearly rate of 61%. Turkey's economy was listing even before the war in Ukraine, which has spiked prices of gas oil and grain. In defiance of conventional economic wisdom and indeed common sense, turkey's president Recep Tayyip Erdoğan continues to insist that low interest rates are a cure, not a cause. I'm joined with more by Hannah lucinda Smith, Istanbul correspondent for the times. Hannah, we have spoken about this before, but to give us some idea of how much weirder this is getting. What sort of impact is it now having on just trying to get stuff done at a day to today level? Yeah, well I think obviously the kind of businesses that have been most affected are the ones that rely on imports and that's because of the collapse in the Turkish currency. So just anecdotally on my street in the past couple of weeks, two shops, which were selling kind of foreign goods, one of the medallion won the mccloud shop have both shot down. It's just become unsustainable because as soon as you kind of convert the prices that you're paying in Euros or dollars or pounds or whatever into Turkish lira, it's just astronomical compared to a year ago and just something that even middle class or upper class Turks can't afford. It's only the kind of super rich you can really afford to be paying those prices anymore. Things like imported food products imported alcohol things like that. It just incredibly expensive. So that's where the most visible signs on the high street if you like are. But other things as well, turkey and ports almost all of its energy. Heating bills going absolutely through the roof. Every time we're looking at kind of gas bills, this winter, people just wincing. Petrol prices, again, going up and up and up. The taxi price is going up as a result of that. And of course, you know, turkey does produce a lot of its own food, particularly fruits and vegetables. But those have to be transported. So even things that are locally produced, there's still a knock on effect. So all of this bunched together is what's causing this absolutely sky high inflation that we're seeing here. I mean, those businesses will, of course, not be the only ones in turkey to have given up and therefore shut up shop in recent weeks. So are we seeing any sort of swift decisive response to this crisis from the government from the Central Bank from anybody? No, is the short answer. I mean, there are a number of things which are kind of beyond beyond the Turkish government's control, kind of worldwide factors which you mentioned at the start. You know, the war in Ukraine, you know, surging energy prices, all these kind of things. And that sort of things that are causing inflation everywhere. But the thing that's causing it to be kind of so out of control here in turkey is the kind of collapse in the Turkish currency. And that is down pretty much to one factor and that is the actions of the Central Bank who are basically refusing to raise interest rates. It must be said under pressure from president Erdoğan. Every kind of technocrats in that bank who's tried to go against him has basically been removed from their position. So Erdoğan has this idea that it's high interest rates that cause high inflation. Almost every other economist on the planet will say exactly the opposite. If you want to bring your inflation down, you have to raise your interest rates. But the fact is in turkey, people are living off credit in different ways either taking out credit to buy a new car, you know, using credit cards just to cover bills using multiple credit cards and a lot of cases. And I think, you know, Erdoğan knows that if there was a sudden credit contraction that would come along with raising interest rates, that's going to send a really sudden shock through the economy. So although on one level, you are starting to see the effects and certainly as well as kind of some businesses closing down prices just go every time you go and supermarket. On another level, you know, turkey is still very, very vibrant and there are people out and people in the cafes, but that's kind of built on sand really. And if the credit was whipped away from underneath the perks, I think there would be a really, really kind of big immediate shock. In Istanbul, thank you as always for joining us. You're listening to the briefing on monocle 24..