Increasing foreign exchange rates, high inflation, high unemployment rate, low labor market involvement, and low incomes are all anyone talks about lately in Turkey. However, the prime minister of Turkey believes otherwise; he claims that the Turkish economy has been experiencing one of the best times in history. So what exactly is happening in Turkey?
The Prime Minister’s Approach
The Turkish minister, Recep Tayyip Erdoğan, believes that the high inflation and unemployment rates are happening due to high-interest rates. According to Erdoğan, the decreasing interest rate would eventually stimulate the economy and minimize inflation. However, based on the economic theory, this statement is wrong. The theory states that there is a negative relationship between inflation and interest rate. There is a relatively more complex mechanism in a national economy, and not everything is related to the interest rate.
The prime minister's claims correlate with the anti-interest approach in Islam, and many feel that he is spending more effort on reaching Islamic goals. His policies are irrational, and the desired economic results have not been met for the past five years. In fact, in 2014, the unemployment rate was around 9%, but that number increased up to 13% in 2020. Other macroeconomic indicators like inflation and income per capita have also recorded similar trends.
The Economic Status of Turkey
The irrationality in economic management may be one of the main reasons behind the recession. The global economy as a whole is currently struggling due to the COVID-19 pandemic, but the economic situation in Turkey is worse. The Turkish lira has already dropped to its lowest, losing 19% against the US dollar and weakening as far as 7.3660 for one dollar. This drop has put entrepreneurs and all other parties involved in trade and other financial activities with Turkey at risk.
The political pressure in Turkey is on the rise, and so are limitations on freedom. In July, the Turkish parliament passed a law regulating social media. This means that news coverage on the deteriorating economic conditions in Turkey might now get a journalist arrested and possibly jailed. Turkey is going against the economic theory and will continue to be in turmoil until the government starts listening to the public outcry.
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