How will Turkey end up if the situation continues?

On August 13, ‘Turkish Lira’ and ‘Turkey’ were ranked as number one and two respectively in the real-time query of the leading portal in Korea, Naver. Two questions are to be asked in this situation. The first one is why did the Turkish Lira suddenly collapse? The other question is what will happen to Turkey’s economy if this situation continues?

After the 1980s, Turkey abandoned their fixed exchange rate system, in which the government determines the exchange rate of the Lira and the Dollar, and adopted the floating exchange rate system. Since then, the Turkish Lira has been steadily devalued. One dollar, which was about a hundred Liras in the early 80s reached 1,300,000 Liras in 2004 when I arrived in Korea. In 2005, Prime Minister Erdoğan promoted ‘redenomination.’ Erdoğan, who has been in control of Turkey since 2002, calls the period until 2009 “apprentice era” and calls the era after 2014, the “master era.” However, it turns out the time when he developed the Turkish economy was during the ‘apprentice era.”

Until 2009, one dollar could not overcome the 1.6 Lira barrier. In 2013 when the ‘Taksim Gezi park incident’ happened, one dollar was valued back and forth between 1.8 Lira. However, since the Gezi Park incident, no one has been able to prevent the depreciation of the Turkish Lira. Experts claim that the 2013 Gezi Park incident has been the starting point of Turkish Lira’s depreciation. After the coup d’etat in July 2016, the Erdoğan regime insisted that the “Hizmet movement” be behind the coup, and took over any company that belonged to this movement or has donated to the group with force. Although Erdoğan’s actions were initially understood for the sake of national security, the international community began to question the Turkish rule of law and the free market economy as the pressure from other antigovernment forces arose. External credibility has been affected. As foreign capital withdrew from Turkey, the rise of the dollar value was inevitable.

The issue of detaining American missionaries, which has often been mentioned with the collapse of the Turkish Lira can be compared to the dessert that comes out last from a set menu. The vice president of Halk Bank, one of the Turkish state banks, is under trial in America for violating the sanctions. Once the jury makes a decision, he will be punished for violating an international economic law. Although the Turkish government attempted to exchange the vice president of Halk Bank with the detained American missionary, they failed to do so. During this diplomatic meeting, there were harsh remarks between the Trump administration and the Erdoğan administration. After the incident, President Trump finally pulled out from the Turkish economy. Although it seems like the reason for Lira’s collapse is due to the United State’s actions, the underlying cause of Lira’s depreciation is due to the weakness of the Turkish economic system. This is because when Trump announced to do the customs sanctions, the Turkish government did not take any actions, and instead Erdoğan instigated the Turkish people and threatened Trump and the United States.

If Turkey had a strong economic pillar, such diplomatic war wouldn’t have a significant impact to this extent on its economy. One important thing during this situation is the mind of the public. The majority of the supporters of Erdoğan see the current situation as an economic war between Turkey and the U.S and are claiming that “even if they die from starvation, they would rather die with Erdoğan.” Some people are condemning the United States by posting videos of burning dollar bills on their social media.

How will Turkey end up if the situation continues? During his evening speech on the 12th, Erdoğan told the Turkish corporates to “exchange all foreign currency they own to Lira as soon as possible,” and “if they don’t adhere, there is another solution.” Finally, a more accurate prediction of Turkey is that on top of the 200 Lira bills, which is considered as a large amount in Turkey that is equivalent to approximately 30 U.S dollars, 500 Lira bills will soon be in use.

By Alpago Sinasi