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Turkey Inflation at 74% as Erdogan Registers Defeat in Local Elections

Last Updated April 1, 2024 2:12 PM
Shraddha Sharma
Last Updated April 1, 2024 2:12 PM
Key Takeaways
  • Turkey’s local elections signal a major defeat for President Erdogan.
  • Economic discontent, highlighted by 74% inflation and a weakening Turkish Lira, has fueled voter dissatisfaction.
  • Erdogan vows to rectify mistakes following the election setback.

On March 31, President Tayyip Erdogan and his AK Party faced defeat in Turkey’s local elections, signaling a resurgence of the opposition led by Istanbul Mayor Ekrem Imamoglu.

On the back of economic issues like soaring inflation, a falling lira, and pensioner discontent, the voter sentiment could change the political power play.

Erdogan’s Defeat and Economic Woes

On March 31, President Tayyip Erdogan and his AK Party (AKP) took a hit in the local elections. Reports  note that it marked a comeback for the opposition after almost 20 years and put Istanbul Mayor Ekrem Imamoglu as Erdogan’s main opponent. Imamoglu-led Republican People’s Party (CHP) won mayoral seats in Istanbul, Ankara, and 15 other cities across Turkey, reported Reuters.

The loss for the ruling party is seen as a possible shift in Turkey’s political climate as traditional secular supporters cheered for the opposition. According to analysts and reporters, the election results are impacted by soaring inflation rates, falling domestic currency, discontent pensioners, and other economic woes.

Interviews conducted by Middle East Eye over the past month reveal that pensioners, once a strong support base for Erdogan, are becoming increasingly frustrated. Retired individuals are upset that their fixed incomes can’t keep up with the cost of living. The report notes that pensions have decreased below the minimum wage with a state pension of about 10,000 Turkish Lira (approximately $300), whereas the minimum wage for workers stands at 17,000 Turkish Lira (around $500).

Turkey’s Soaring Inflation

American economist and professor of applied economics at Johns Hopkins, Steve Hanke noted, “Turks are fed up with Erdogan’s mismanagement of the economy, the collapsing lira, and punishing inflation.”

In March, Turkey’s central bank hiked the interest rate to 50% to control inflation. Hanke reported that Turkey’s inflation rate is a staggering 74%, making it the seventh highest in the world according to his Hanke Inflation Dashboard.

According to a report by Fortune , after reaching a high of 85% in October 2022, Turkey’s annual inflation rate decreased to just under 40% by mid-2023. While official figures for February show a 67% YoY increase in consumer prices, they might understate the problem with the real inflation indicators exceeding 100% based on some reports.

TRY Against USD 1-Day Chart | Source: TradingView
TRY Against USD 1-Day Chart | Source: TradingView

The Turkish Lira has been weak against the dollar with the currency gaining some strength in 2024. In 3 months, TRY’s rising trajectory was hit twice on March 20 and March 31. The momentum for the currency went in the oversold zone, close to a record low after the local election results. However, TRY regained some strength hours after the dip. At the time of writing, 1 USD equals 31.95 TRY as per TradingView charts.

The Predicted Devaluation

Robin Brooks, who is a Senior Fellow at the Brookings Institution and has previously held positions as Chief Economist at the Global Financial Association IIF said  that Turkey is experiencing a huge increase in borrowing and spending. According to him, a similar boost in spending happened before the May 2023 election, which resulted in the Turkish Lira losing value. Brooks predicted the same outcome now with TRY devaluation.

Any increase in spending leads to buying more goods from other countries, which enlarges the trade deficit as per the economist.

President Tayyip Erdogan was quoted  as promising to address and rectify the errors that contributed to his party’s loss in the local elections in Turkey.

He said, “This is not an end for us, but actually a turning point.” He added, “If we made a mistake, we will fix it.”

What’s Next?

Turkey’s local elections have marked a defeat for President Erdogan and his ruling party. The local election results spotlight voter unhappiness with the economy. Inflation has reportedly hit 74%, and the Turkish Lira is losing value. While Erdogan has promised to fix issues, he is facing a deadline to address Turkey’s economic struggles and restore confidence.

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