The inexorable decline of the Turkish lira under Erdogan

Power play.
Power play.
Image: Kayhan Ozer/Presidential Palace
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Turkey’s long-standing leader is standing over a long decline of the nation’s currency. Since Recep Tayyip Erdogan first became prime minister in 2003, the lira has lost 65% of its value against the US dollar. As it looked increasingly likely that Erdogan would extend his time as president—a position he’s held since 2014—the lira has tumbled lower.

Erdogan won an election on Sunday that strengthens his increasingly authoritarian rule. He instigated a state of emergency after a failed coup against him in 2016, retaliated by eroding judicial independence, and led crackdowns against press freedom. Sunday’s vote makes him executive president, meaning he is both head of state and head of government, abolishing the role of prime minister.

Despite a hard-fought campaign by the opposition, Erdogan did better than expected in the snap election he called just two months ago, winning outright in the first round. The election timing could have been at least partly motivated by a desire to secure more power before the effects of an overheating economy, high inflation, and crumbling currency are felt by Turkish households and businesses.

After the election result, the Turkish lira rose by as much as 3% against the dollar, but the gains didn’t even last the morning. Erdogan’s plan to take more control over interest rates are particularly worrisome for investors: The president is against raising interest rates despite stubbornly high inflation at 12% (more than twice the central bank’s target). The lira has fallen more than 18% this year against the US dollar as investors watched Erdogan attack the central bank’s independence, suggesting that high interest rates stoke, rather than tame, inflation.

The constitutional changes that narrowly passed in a referendum last year will now go ahead, which allow for the president to be elected to two five-year terms with the possibility of a third, meaning Erdogan could hold power until 2028. As he digs in, Erdogan’s policies risk creating a vicious circle in which investors ditch the lira, making it harder for corporations to repay their large piles of dollar-denominated debt, further worrying investors about the nation’s economy and giving them another reason to dump the currency, which will keep inflation high.