ISTANBUL—On a wide staircase opposite a popular bar in Turkey’s largest city, a group of people sit watching the sunset, enjoying cheap drinks and snacks they’ve brought from home. They used to frequent the bar, and they still want to. They just can’t afford it.
ISTANBUL—On a wide staircase opposite a popular bar in Turkey’s largest city, a group of people sit watching the sunset, enjoying cheap drinks and snacks they’ve brought from home. They used to frequent the bar, and they still want to. They just can’t afford it.
“The situation continues to get worse,” said one of the laid-off bar waiters, who asked not to be named for fear of losing his job for speaking out. “The wages are low and prices keep rising. It’s a frustrating situation for all of us,” he added.
Turkey has an inflation problem, and has for some time. Last October, the annualized inflation rate hit a 24-year high of 85.5%, meaning prices have almost doubled. This year, inflation has gone from extremely high to moderately high, and is once again heading toward unsustainable levels. Turkey’s monthly inflation rate, on an annualized basis, is enough to cause panic attacks in the United States and Western Europe. In June, inflation was nearly 40% year-on-year. In July, it was nearly 50%, and in August, it was nearly 60%. Investment banks and the government agree that inflation is likely to reach 65% by the end of the year. The Ankara government is optimistic that it wants to halve inflation by next year.
Inflation ran out of control because Turkish President Recep Tayyip Erdogan believed he could somehow tame it with low interest rates. Experts say the reason inflation may still be under control is because he belatedly abandoned that very approach and suddenly reversed monetary policy.
Erdogan has long advocated for keeping Turkey’s central bank interest rates relatively low to keep credit flowing and stimulate the economy, even if that means raising inflation. Ahead of the general election in May, Erdogan raised Turkey’s minimum wage and used the central bank’s foreign exchange reserves to bolster the Turkish lira and stabilize the currency. It was a short-term gambit.
People shop at Istanbul’s Fish Market, which is lined with stalls selling fish and other foods.
People shop at a fish market in Istanbul on January 7.
So far in the post-election period, Erdogan seems to have received the gospel. In late August, the central bank raised interest rates substantially, for the third time since the May elections. Rates jumped from 8.5% to 17.5% in July and are now at 25%. Higher rates are supposed to limit the flow of easy money into the economy, keeping inflation in check. They are also, in theory, supposed to support the country’s currency, but lira traders don’t get it. The Turkish lira, which was roughly equivalent to the U.S. dollar in early 2008, is now worth just under 4 cents.
Erdogan signaled a shift in policy by appointing former deputy prime minister and Merrill Lynch banker Mehmet Simsek as finance minister and Hafiz Gayye Ercan as central bank governor. Simsek argued on Thursday that markets have confidence in Erdogan’s management of the economy. But as the game of musical chairs unfolds, many Turks are running out of money and patience.
“Many household incomes are not keeping up with inflation and impoverishment is now one of the biggest problems. We are seeing an abnormal rise in inflation and people are feeling anxious and disappointed,” said Turkish economist Mustafa Sonmez.
Two people prepare to pray at Kili Ali Pasha Mosque in Istanbul, Turkey, whose dark arches stretch into the distance.
People prepare for prayer at the Kili Ali Pasha Mosque in Istanbul on January 7.
When inflation gets that high, it has an impact on society as a whole, said Ugur Dolgun, a sociologist at Istanbul University. With thinner wallets, “people go out less, eat out less, don’t go on cultural outings. Food security becomes a top priority. Stress levels go up, and you see an increase in depression, anxiety and even domestic violence,” he said. Education isn’t much better either.
“Students are turning to night classes and distance learning because they have to work during the day,” Dolgan said. “Financial issues are pushing them out of education. This is all a vicious cycle that we need to break.”
Hatice, 20, said she wanted to share her story but asked to use a pseudonym because she felt criticizing the economy could backfire. Hatice, a third-year sociology student, decided to drop out of school in the fall semester, saying financial problems forced her to do so.
“I decided to work full-time instead,” she says. “Of course I don’t want to quit my studies, but right now I can’t even afford to stay in the campus dorms. The economic crisis has affected us students a lot, both in terms of not being able to pay the fees and in terms of the fear of not being able to find a job in my field after graduation.” For now, she has moved back in with her parents, postponed her junior year and is working for an online retailer.
Turkey’s economy has struggled before. The 2001 crisis saw the stock market crash and the Turkish lira plummet, but Erdogan came to power soon after and implemented new reforms. He promoted exports and increased foreign investment, all of which led to strong economic growth. The Turkish lira was doing well and the economy was booming. Many Turks were rapidly prospering and the economy was considered a miracle. Wanting to spur this growth even further, Erdogan cut the central bank interest rate to 8.5% in February and recently reversed it. Many economists considered this policy unorthodox, as lower interest rates naturally boost inflation and growth.
Two people sit on a bench looking out over the water across the Golden Horn in Istanbul’s Karakoy district.
On August 30th, from the Karakoy district of Istanbul, I looked out over the Golden Horn, a square-shaped inlet that divides the city in two.
But while many Turks are cutting back on going out to drink and dine in cities like Istanbul, one industry remains thriving: tourism. The Mediterranean country attracts millions of tourists every year, with more than 22 million visitors in the first half of this year alone generating nearly $22 billion in revenue, according to the Turkish Statistical Institute.
Tourists who come from far away can enjoy themselves without worry. It’s the staff who serve them who are the problem.
“The tension is palpable on the streets,” said Samira Shah, an Istanbul resident.
“People in Turkey are worried and nervous. A few days ago I was woken up just after midnight by a delivery man who had realised he was short on money for his afternoon meal delivery at the end of his shift and was ringing the doorbell furiously, shouting that he needed 100 lira immediately. [$3.75] He didn’t accidentally charge me because otherwise his boss would have deducted even more from his already low salary. He was desperate. I think there are a lot of people like him.”
