Melbourne woman Vildan Ozer and her husband Alex have mixed feelings planning a long-delayed trip home to Turkey to visit family.
There’s the usual traveller’s delight at a favourable exchange rate: in less than three months, the Turkish lira has dropped more than 40 per cent against the Australian dollar.
One dollar now buys more than nine and a half lira, up from six lira.
“We’ll probably be going away to stay at a nice hotel a bit longer than we originally planned,” says Ms Ozer.
But the couple is all too conscious that their gain is pain for so many others within Turkey’s 85-million strong population.
There, the official inflation rate has soared to 21 per cent, as the low currency drives up the price of imported goods.
People check rates on a board of currency exchange office in Istanbul, Turkey, 23 November 2021. Source: EPA
It’s creating an economic crisis, with minimum wage earners the hardest hit.
These days, out of normally vibrant Istanbul, come images of people queueing for cheap bread.
“My family is constantly helping the people around them,” says Ms Ozer.
”Some of them say they can’t pay the bills. My relatives buy food for some families and clothing for others. All of a sudden, people who used to say they were managing okay are now just below the poverty line.”
'Unorthodox economic approach'
The Turkish currency has lost around 50 per cent of its value against the US dollar this year – around half of that in November alone.
But the freefall began much earlier, with economists pointing to years of unconventional inflation theories pursued by President Recep Tayyip Erdogan.
By late 2017, inflation in Turkey was nearing 12 per cent - but since then, the President has consistently rejected the traditional economic practice of central banks lifting interest rates to counter rising inflation.
Instead, he's argued that higher rates fuel inflation.
Interest rates have fallen from 19 to 15 per cent since September, with another cut expected later this month.
“These really describe the unorthodox economic approach of Erdogan’s government,” says Anas Iqtait, from the Australian National University's Centre for Arab and Islamic Studies.
Turkey's President Recep Tayyip Erdogan. Source: Turkish Presidency
“It’s very difficult to explain the reasons behind cutting interest rates, particularly when there are high inflation rates, but this is the policy that Erdogan has been pursuing.”
Since 2019, the President has removed three central bankers who tried to raise interest rates.
Watching on, much-needed foreign investors have lost confidence in the lira and in a central bank subject to presidential intervention, so they've bought less lira to invest in Turkey, further weakening the currency.
The conservative Mr Erdogan has previously invoked religion as justification for his approach, calling interest rates "the mother and father of all evil" in a 2018 interview.
According to financial principles rooted in Islam, charging interest on debts is seen as ‘riba’ or usury, and therefore, sinful.
“Basically there is no economic sense at all,” says Veysel Ulusoy, an economics professor at Istanbul’s Yeditepe University.
“By lowering interest rates, he is trying to make the religious people stay with him during a process at the end of which is an election.”
Presidential elections are due in 2023.
Professor Ulusoy leads an independent research group that's published alternative inflation data, calculating inflation to be closer to 60 per cent than 21.
In February, the main government statistics body, the Turkish Statistical Agency, filed a criminal complaint against the group, which the then-finance minister accused of spreading misleading data.
Professor Ulusoy says he hopes there’ll be a case that reaches open court.
“The official rate doesn’t match the behaviour of people saving their money, nor the behaviour of investors,” he says.
The 'China of Europe'
Mr Erdogan says lower interest rates and a weaker currency should accelerate economic growth, exports and employment.
Nev Bagriyanik, who runs a Turkish dessert bar in Sydney’s inner-west, says he sees some sense in that, having worked in textiles in Turkey in the early 2000s.
“When the lira was low, business was great because we used to export a lot. We were a very interesting country,” he says.
“Geographically, Turkey is in a really great position to supply Europe with manufacturing, so it could be like a small China.”
However, Dr Iqtait sees key differences from that time, with today’s broader inflation and higher energy and other manufacturing costs outweighing any competitive advantage to be had from a lower currency.
Nev Bagriyanik worked in textiles in Turkey in the early 2000s. Source: SBS News/Rena Sarumpaet
“So most likely what will happen,” he says, “is that the costs accrued by Turkish manufacturers will make it extremely difficult for them to remain competitive, and to achieve one of Erdogan’s goals, which is to become the China of Europe.”
Swings and roundabouts
Melbourne travel agent Marcus Falay is feeling the currency crisis in a different way.
In 2013 he bought an apartment for his retired mother in central Cappadocia for around $110,000.
In Australian dollar terms, he’s now seriously underwater on that investment.
But at the same time, there are now fresh buying opportunities.
Melbourne travel agent Marcus Falay Source: SBS News/Rena Sarumpaet
“You could spend as little as little as $50, 60 thousand and buy a nice 2 or 3-bedroom apartment in various parts of the country," Mr Falay says.
But the situation remains volatile, and he says the local Turkish community is exercising caution.
“It could be an opportunity for the real investor - and it’s a perfect time for them to put some money in there.
“But at the same time, we're seeing people just holding off from making any of those big investments at the moment.”
