Turkey’s economy paying the price for years of policy mishaps

For many years, it wasn’t the economy that determined voting behavior in Turkey. The country’s president, Recep Tayyip Erdogan, won almost every election he contested despite a deteriorating economic outlook.

This is commonly explained by the importance of identity politics in a country that has been polarised by the policies of Erdogan’s ruling Justice and Development (AK) Party over its 22 years in power.

However, Erdogan’s streak came to a screeching halt on Sunday, March 31 following Turkey’s local elections. His AK Party lost the popular vote for the first time since 2002 and the main opposition group claimed victory in key cities including Istanbul and Ankara.

The reason why this time was different lies in the huge accumulated costs from years of policy mistakes that are now beginning to bite in a serious way.

So, what was the economic outlook as the country went to the polls?

On March 21, Turkey’s central bank raised interest rates unexpectedly to 50%. The move was the latest in a succession of rate rises that have followed Erdogan’s re-election as president in May 2023. It was viewed as evidence of the central bank’s determination to fight runaway inflation that is hovering close to 70%.

The rising interest rates have been widely applauded as a much-needed reversal from the unorthodox monetary policy that had gone on far too long. Erdogan’s unconventional policy stance arose from his deep-held conviction that raising interest rates would increase inflation rather than reduce it.

The pandemic and Russia’s invasion of Ukraine caused inflation to soar worldwide. While almost every central bank raised interest rates in response, Turkey went on an interest rate cutting spree. Keeping rates artificially low contributed