Watch out for Turkey. She has an extremely difficult task ahead of her

On May 14, Turkey will hold the first round of presidential elections. The common candidate of the majority of the opposition Democrat Kemal Kılıçdaroğlu ahead of Recep Erdoğan in the polls, Prime Minister since 2003 and President since 2014.

As experts from the Polish Economic Institute emphasize, the early years of Erdoğan’s rule were a time of rapid economic growth and an increase in living standards for Turkey after the difficult 1990s. Between 2002 and 2012 Turkey’s GDP grew at an average annual rate of over 5%.and inflation fell to single-digit levels for the first time in decades.

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Inflation and the cost of living crisis are an important topic of the election campaign ahead of the parliamentary and presidential elections scheduled for May 14 – PKO BP specialists note.

What is important for Poles traveling to this country, compared to the previous year, prices in health care are growing the most, hospitality industry and food prices (53.9 percent year on year).

Statistics clearly show that Turkey is one of the most popular destinations among our compatriots. Last year, over 1.1 million tourists from Poland came to this country, which was facilitated, among others, by Parliament’s decision to abolish the obligation to enter with a passport for Poles.

The declining value of the Turkish currency may also have contributed to this decision. Two years ago, we paid about PLN 0.60 for 1 lira. Currently, however, it costs only about PLN 0.21.

However, the times of low inflation, rapid economic growth and rising living standards in Turkey are over. In April, consumer inflation (CPI) fell to 43.7 percent. year on year (y/y) from 50.5% a month earlier and was slightly lower than expected, but compared to March, prices increased by 2.4 percent.

– The fall in inflation resulted to a large extent from the base effect, supported by a relatively stable exchange rate of the lira – explain the economists of the largest Polish bank.

At a time when inflation was 85 percent. the central bank subordinated to Erdoğan lowered interest rates – by 10 percentage points. as of 2021. This was an action against all economics textbooks. An increase in interest rates could increase the demand for lira and make it more attractive to conclude loans denominated in lira and reduce the astronomical increase in inflation. It didn’t.

– Erdoğan’s authoritarian tendencies and his unconventional monetary policy undermined the confidence of investors and rating agencies to Turkey, which increased interest rates on new foreign loans. Debt servicing costs have approximately doubled since 2019, PIE economists note.

Whoever wins the presidential election will have a difficult task ahead of them – they add.

PIE explains that for many years a permanent element of the Turkish economy has been a negative balance in international trade, resulting largely from imports of consumer goods.

So Turkey spends much more money buying goods than it earns selling its products. In 2022, this deficit reached $44 billion, or more than 4 percent. GDP.

Due to the low demand for the Turkish lira and the very high demand for foreign currencies among the Turks and the Turkish government, needed even to repay debts or pay for imported goods, we are dealing with a sharp depreciation of the Turkish currency. While in 2008, 1 lira was worth 80 US cents, now it is exchanged for 5 cents, PIE experts calculate.

Such a radical drop in quotations caused bankruptcies of enterprises and poverty of borrowed households abroad. In addition, the prices of imported goods increased significantly, contributing to inflation. Turkey’s central bank is selling off its foreign exchange and gold reserves to stop the exchange rate from falling further, but to no avail.

The current president does not have an easy task. There will be parliamentary and presidential elections this year the most serious test for the ruling coalition in 20 years and President Recep Tayyip Erdoğan.

As Aleksandra Maria Spancerska from the Polish Institute of International Affairs (PISM) explains, Turkish society is tired of the rule of the Justice and Development Party (AKP) led by Erdoğan. – It sees corruption in the government camp and expresses anger at the deepening economic disparities in the country – says the expert.

Erdoğan’s main opponent was the aforementioned Kemal Kılıçdaroğlu, leader of the Republican People’s Party (CHP), a party that is part of the most important opposition coalition, the so-called Table of Six. Kılıçdaroğlu wants to restore the parliamentary-cabinet system and prevent further consolidation of authoritarian influences in the Turkish political system.

For the European Union, a victory of the Table of Six in the parliamentary elections would be beneficial, e.g. due to the declarations of the Turkish opposition that it will respect the decisions of the European Convention on Human Rights – important in the context of improving the human rights situation in Turkey. From NATO’s point of view, the postulate of correcting the approach to Russia is important. The current diplomacy of the leaders led by Erdoğan and Putin would be transferred to the institutional level, which would foster greater transparency of decision-making processes, stresses Aleksandra Maria Spancerska.

Elections in Turkey are also important for Poland. From a political point of view. According to the PISM specialist, if the opposition takes power, it may cause the rulers to be interested in our country’s greater involvement in the process of normalizing Turkey’s relations with the EU, e.g. to speed up the modernization of the Customs Union and liberalize visa rules.

– In the long term, this will require the EU to propose a new cooperation format to Turkey. Greater involvement of Poland may be appreciated by the new authorities and become an opportunity for further intensification of the development of Polish-Turkish cooperation – says the expert.

Damian Szymański, journalist and deputy editor of money.pl