This is the cost of a 1.5 year economic experiment

AKP President and Chairman Recep Tayyip Erdoğan, who presented Turkey in 2022 with a new economic model saying: “My field is economics, I am an economist,” has been implementing the policy for a year and a half on the thesis that “interest is the reason”. , inflation is the result.” faced the crisis.

At that time, Erdogan told critics of economists that “interest is the cause and inflation is the result” at that time, “As long as I am in this office, I will continue my fight against interest to the end.” What is clear about this? What happens to you, to me, now that you’re in the middle? he had responded.

As the criticism continued, Erdogan again gave religious references, saying:
“What is it, sir? We were lowering interest rates. Don’t expect anything more from me. As a Muslim, I will continue to do whatever it takes. Alhamdulillah we are on the right path. Because the rule that interest makes the rich richer and the poor poorer is not a common rule for us.”

Speaking to reporters on his return flight from Azerbaijan yesterday, President Erdoğan stated that he still defends this thesis, but that he accepts the steps that will be taken by Treasury and Finance Minister Mehmet Şimşek and Central Bank Governor Hafize Gaye Erkan. .

Erdogan’s remarks, which were interpreted as a ‘green light for an interest rate hike’, were as follows:

“Of course, some friends shouldn’t make the mistake of ‘Is the president going to make a serious change in interest policy?’ I am the same here. But at the point of current thinking of our Finance Minister, of course, we accepted him to take the steps that he is going to take here quickly and easily together with the Central Bank, we told him ‘good luck’ and in that way we also declare our determination to reduce inflation to single digits.”

Following these statements by Erdoğan, which led to the assessment that the ‘nas’ era in the economy was over, attention turned to the cost of the “new economic model”, which has been persistently applied for a year and a half.

BIG LOSS OF VALUE IN TL

The dollar/TL exchange rate, which was 12.96 on November 30, when Erdogan announced the ‘new economic model’, rose to 18.36 on December 20. The dollar-based model, which is attempted to be maintained by using CBRT reserves and indexing TL savings to foreign currency with currency-protected deposits, has almost doubled in value since its implementation and stood at 24 lira .

HE SAID ‘EVERYONE MAKE THE ACCOUNT ACCORDING TO HIM’, BUT…

Official annual consumer inflation was 19.25 percent in August 2021, before the CBRT began cutting interest rates. The CBRT policy rate was 19 percent. In November, when Erdogan announced the new economic model, inflation was 21.31%, while the policy rate was lowered to 15%. In the period the model was applied, official inflation reached a new high in the 21-year AKP rule.

On January 29, 2022, “You know my fight with interest, we will lower and lower interest rates. Know that inflation will also decrease, it will decrease even more. The exchange rate stabilizes, inflation decreases and the increase in prices disappears. Erdogan said, “This is all temporary,” and when he couldn’t bring inflation down during the year, he dropped his promises until 2023. He ended the year 2022 with the words, “Everyone should do their math according to 20 percent inflation.” in 2023″. However, inflation is at the level of 39.59 percent, according to the latest data announced by TURKSTAT.

FOR INTEREST INTEREST…

Although the central bank kept the policy rate at 8.5 percent on Erdogan’s instructions, deposit and loan rates were seen at 20-year highs. The government opened the credit faucets at the expense of fueling inflation and the current account deficit in the pre-election period, but at that time, while many citizens could not access credit, those who could face interest rates above 50 percent hundred. While using loans and buying a house and a car is now a dream for most of society, interest on deposits has surpassed 40 percent levels. Erdogan ‘actually’ lost in his battle with interest rates.

DEBT EXPLORE

While the central bank kept the policy rate constant at 8.5 percent, the interest and debt burden paid by the Treasury increased day by day in Erdogan’s economic model. For the first time in the history of the Republic, the interest debt of the public exceeded the principal debt. In the last three months, the Treasury repaid a total of TL 273.2 billion, of which TL 159.8 billion was internal debt and TL 113.4 billion was external debt. In these three months, 59 percent of the debt service consisted of interest payments and the remaining 41 percent in principal.

CURRENT OPEN FOLDED

Erdogan’s biggest claim in the new economic model was to have a current account surplus with the advantage of a ‘competitive exchange rate’, which will be achieved by keeping the value of the TL low. However, the picture turned out to be the opposite with the effect of the high prices of raw materials. While the Turkish economy ran a current account deficit for 17 consecutive months, the 10-year peak was seen in February 2023 at $55 billion. In all of 2021, the current account deficit was $14.9 billion.

THE BUDGET HAS BEEN TOGETHER

Erdogan’s lax economic policy has shattered the central government’s budget. The government, which spent a lot with the effect of the elections, gave a deficit of TL 132.5 billion in this April and TL 382.5 billion in the January-April period of this year. The budget deficit was TL 50.2 billion in April last year and TL 19.4 billion in the January-April period.