Erdogan faces cash crisis

TURKEY: LIRA COLLAPSES BY MASSIVE 40% THIS YEAR AND INVESTORS ARE RATTLED

‘Economy is a big concern because people are getting poorer.’

After 15 years in power as prime minister and president, Tayyip Erdogan faced down a weak opposition in June elections that swept away any checks and balances to the unchallenged rule he wanted.

In Turkey, he appears lord of all he surveys.

But his victory could become a poisoned chalice if he cannot resolve an angry feud with President Donald Trump that is pushing his country towards financial crisis.

Erdogan has limited options. Most involve a loss of face or a loss of sovereignty for which he alone would be blamed, having successfully marginalised not just a divided opposition, but his own Justice and Development Party (AKP).

His victories in June were decisive. Re-elected as president under a new order modelled more on Vladimir Putin’s Russia than France or the United States, he also secured a parliamentary majority by allying with far-right nationalists.

The role of prime minister was abolished, leaving Erdogan to dominate not just the executive – appointing ministers, chairing the Cabinet and replacing top civil servants with political appointees – but also holding sway over the judiciary and the legislature.

Having chosen to rule alone from his vast neo-Ottoman palace in Ankara, he confronts the spiralling crisis alone.

The lira has collapsed by 40% this year. Turkish banks that borrowed heavily abroad now face the near impossible task of refinancing short-term debt in expensive dollars and euros.

Investors rattled by soaring inflation and a widening current account deficit were suddenly confronted by a row between Erdogan and Trump, who doubled tariffs on US imports of Turkish steel and aluminium.

“The economy is a big concern because people are getting poorer” the source close to the AKP said. “In all these years we didn’t invest, except in construction, and we cannot eat that. We missed trains like investing in technology and industry.”

As inflation spikes, the central bank is signalling a rise in interest rates next week to break the lira’s free fall. But given Erdogan’s belief that interest rates, which he calls the “mother and father of all evil”, are a cause of inflation, any hike may be too little and too late.