Turkish economic crisis (2018–current)

The crisis was caused by the Turkish economy's excessive current account deficit and large amounts of private foreign-currency denominated debt, in combination with President Recep Tayyip Erdoğan's increasing authoritarianism and his unorthodox ideas about interest rate policy.

Following the detention of American pastor Andrew Brunson, who was confined of espionage charges after the failed 2016 Turkish coup d'état attempt, the Trump administration exerted pressure towards Turkey by imposing further sanctions.

[6][7][8][better source needed] After a period of modest recovery in 2020 and early 2021 amid the COVID-19 pandemic, the Turkish lira plunged following the replacement of Central Bank chief Naci Ağbal with Şahap Kavcıoğlu,[9] who slashed interest rates from 19%[10] to 14%.

[12][13][14] In 2023, however, Erdoğan began to follow orthodox banking methods under the guidance of Mehmet Şimşek and Hafize Gaye Erkan.

[17] The economy has relied on capital inflows to fund private-sector excess, with Turkey's banks and big firms borrowing heavily, often in foreign currencies.

[3] The economic policy underlying these trends had increasingly been micro-managed by Erdoğan since the election of his Justice and Development Party (AKP) in 2002, and strongly so since 2008, with a focus on the construction industry, state-awarded contracts and stimulus measures.

Although, research and development expenditure of the country (% of GDP)[quantify] and the government expenditure on education (% of GDP)[quantify] are nearly doubled during AKP governments, the desired outcomes could not be achieved[20][21][22] The motive for these policies have been described as Erdoğan losing faith in Western-style capitalism since the 2008 financial crisis by the secretary general of the main Turkish business association, TUSIAD.

[2] Investment inflows have also declined because Erdoğan's increasing authoritarianism has quelled free and factual reporting by financial analysts in Turkey.

The transformational phase of the plan will be focusing on value-added areas to increase the country's export volume and long-term production capacity with the goal of creating two million new jobs by 2021.

Among economists, the accelerating loss of value was generally attributed to Recep Tayyip Erdoğan preventing the Central Bank of the Republic of Turkey from making the necessary interest rate adjustments.

"[41][44] Presidential intervention with central bank policy comes with a general perception in international investment circles of a "textbook institutional decline" in Turkey, with Erdoğan seen increasingly reliant on politicians whose main qualifications for their jobs is loyalty, at the expense of more qualified and experienced options.

"[49] By mid-June, analysts in London suggested that with its current government, Turkey would be well advised to seek an International Monetary Fund loan even before the dwindling central bank foreign exchange reserves run out, because it would strengthen the central bank's hand against Erdoğan and help gain back investor confidence in the soundness of Turkey's economic policies.

"[51] In August 2023, Turkey's central bank raised interest rates by 7.5 points to 25% to tackle inflation, signaling a shift from previous policies.

[52][53] During the emergence of the crisis, lenders in Turkey were hit by restructuring demands of corporations unable to serve their USD or EUR denominated debt, due to the loss of value of their earnings in Turkish lira.

[58] However, it is hard to say that this is mainly due to the economic developments in Turkey since the valuation of Halkbank was largely affected by the rumors over the possible outcomes of the US investigation about the bank's stated help to Iran in evading US sanctions.

[60][61] Nevertheless, this development has also led to incomplete or unoccupied housing and commercial real estate littering the outskirts of Turkey's major cities, as Erdoğan's policies had fuelled the construction sector, where many of his business allies are very active, to lead past economic growth.

[64] As a consequence of the earlier monetary policy of easy money, any newfound fragile short-term macroeconomic stability is based on higher interest rates, thus creating a recessionary effect for the Turkish economy.

[65] In mid-June, the Washington Post carried the quote from a senior financial figure in Istanbul that "years of irresponsible policies have overheated the Turkish economy.

[69][70] In mid-November The Guardian reported that an anonymous benefactor had paid off some debts at local grocery stores in Tuzla and left envelopes of cash on doorstops after the suicides.

[209] On 30 May 2018, foreign minister Mevlüt Çavuşoğlu said that the plunge of the lira would have been caused by an organized campaign masterminded abroad, adding that the conspiracy would include both "the interest rate lobby" and "some Muslim countries", which he however refused to name.

[210] At an election campaign rally in Istanbul on 11 June 2018, Erdoğan said that the recently published 7.4 percent GDP growth figure for the January to March period would demonstrate victory against what he called "conspirators" whom he blamed for May's heavy falls of the Turkish lira.

However, Sarah Sanders has described the American tariffs as related to "national defense",[214] and thus not changeable by circumstances, noting that only the sanctions would be lifted upon the release of Brunson.

[218] Erdogan spokesman Ibrahim Kalin, in a written statement, described these remarks as an admission that, contra Sanders, the American tariffs were, in fact, in relation to the Brunson case and proof that the US intended them to economically war against Turkey.

[221] On 16 May, a day after president Erdoğan had unsettled markets during his visit to London by suggesting he would curb the independence of the Central Bank of Turkey after the election, Republican People's Party (CHP) presidential candidate Muharrem İnce and İYİ Party presidential candidate Meral Akşener both vowed to ensure the independence of the central bank if elected.

Turkey needs to immediately be extricated from a political situation that breeds economic uncertainty, and its economy must be handled by independent and autonomous institutions.

"[228] In early April 2017, Peoples' Democratic Party (HDP) presidential candidate Selahattin Demirtaş, writing in a letter from prison—where he has been held without conviction since 2016, charged of inciting violence with words—[231] saying that "the biggest problem for the youth in Turkey is corruption which has accompanied with AKP governance.

"[232] In late May 2018, Republican People's Party (CHP) deputy chair Aykut Erdoğdu called the Financial Crimes Investigation Board of Turkey (MASAK) to investigate exchange rate transactions made amid rapid decline and partial recovery in the value of the lira on 23 May, saying there was insider trading by market participants who knew of the 300 basis points interest rate hike by the Turkish central bank in advance.