International Political Economy

International Political Economy

Question 1

Based on the article’s contents, inflation is the most significant economic problem in Turkey today. Inflation is the general increase in prices and a fall in the purchasing value of money or a currency (Ravenhill, 2005). In Turkey, the lira has lost 45% of its value, with the rate of inflation currently standing at 21% (Malsin, 2021). Economists have blamed the president’s economic policies for the current predicaments in the country. In his defense, President Erdogan argues that the lira depreciation is welcome because it encourages Turkey to adopt an export-based economy similar to that of Taiwan and Japan. An export-based economy is when international trade makes up a large percentage of the economy.

As a result of this argument, the president has made radical decisions that have only increased the inflation rate. For instance, normal circumstances require that the central bank responds by not slashing interest rates when inflation goes up. However, due to pressure from the presidency, the Turkish central bank slashes interest rates against the increasing inflation rate. As a result, the country is poised to plunge into an economic crisis because of the consequences of increasing inflation.

Some of the consequences include investor selloff of the lira, increase in fuel prices, the inability of civil and blue-collar employees to meet their needs, the reduced purchasing power of the population, the rarity of foreign goods and services, and limitations on household expenditures. Exporters are forced to pay more for energy and raw material, making it challenging to afford goods and services. Potentially, the lira’s collapse may cause Turkey to default on its foreign debt. In a worst-case scenario, people will continue losing jobs, leading to public unrest, which might fuel another coup attempt. Thus, the current economic crisis is also a sociopolitical crisis.