Turkey:
The Fall of the Lira, Paid for by the Population

Aug 20, 2018

The following article is translated from Lutte Ouvrière, the newspaper of the revolutionary workers’ group of that name active in France.

Turkish president Erdogan habitually turns his back when he finds himself faced with difficulties. This is how he chose to respond to the pressures of the U.S., to the point of risking the bankruptcy of the whole Turkish economy.

A crisis of confidence swept the markets and caused a 20 percent drop in the value of the Turkish currency, the lira, in one day, and of 40% since the beginning of the year. It was sparked by a difference between Erdogan and the U.S. president. Trump wants Turkey to free an American pastor, Brunson, who has been jailed in Turkey for working with the clan of Fethullah Gülen. Erdogan claims Gülen was the inspirer of the attempted coup of July 2016, and wants the U.S. to extradite him to Turkey.

For Trump, an Uncertain Ally

But the conflict obviously has deeper causes. Under the direction of Erdogan, even though it is a member of NATO, Turkey has become a weak ally for the U.S. In Syria, Turkey has long supported jihadists and ISIS, while the U.S. has helped Kurdish militias. To assert his independence, Erdogan has improved relations with Russia, to the point of buying Russian weapons. Erdogan has also often bypassed the U.S. embargo against Iran, and, now that this embargo is again supposed to be vigorously enforced, he has announced his intention to maintain economic relations with Iran, which are essential for the Turkish economy.

These are things Trump cannot tolerate and that incited him to demonstrate to Erdogan that U.S. imperialism is still in command. Trump decided to double the taxes imposed on Turkish steel and aluminum imported into the U.S. Erdogan, in trying to assert the independence of Turkey, wants to show that he can play at Trump’s level, but the current crisis reveals his weakness. He has hardened the regime, intensified the repression, modified the constitution to reinforce his personal power and that of his clan, and practically imposed a dictatorship. He has launched giant construction projects including building a giant new mosque, a tunnel under the Bosphorus, and a third bridge over the straits, a new presidential palace and a third airport for Istanbul. But all this has a cost, and it’s being financed with foreign debt. And the banks, especially those in Western Europe and the United States, must be paid in euros or in dollars. In fact, U.S. investors own almost 25 percent of Turkish bonds and more than half of publicly traded Turkish stocks.

The success of the Turkish economy has been built on credit, and on the banks’ confidence in Turkey’s capacity to pay back its debts. Now this confidence is collapsing. For weeks, western capital has been fleeing the country, causing the fall in the value of the currency, an acceleration of inflation, and a decline in the buying power of the population, who find themselves less and less able to pay back their loans to the banks. The small and medium-sized businesses, who were credited with driving the Turkish economic boom, are also highly indebted and they must pay their debts with dollars or euros. They are at risk of bankruptcy with the fall of the lira.

Confidence Collapses, and the Population Pays

Erdogan might continue to insist that the whole crisis is nothing but a vast conspiracy organized by “the interest rate lobby,” and behind them, the enemies of Turkey, allies of Fethullah Gülen and “terrorists,” the term Erdogan uses for his opponents. Turkish media, which is totally controlled by the Erdogan clan, repeats that the economy is doing well. Erdogan threatens the U.S. that he might change his alliance. “They have the dollar, but we have Allah,” as he said in one speech. And he continues to call on the population to demonstrate its confidence by using its gold and foreign currency to buy Turkish lira. But it is not likely that this will work. In Turkey, you can find a foreign currency exchange on every corner, listing the growing value of the euro and the dollar in comparison to the Turkish lira, and therefore inciting people to sell their lira and cause the currency to drop even faster.

The crisis can be seen developing every day in the rise of prices in the stores and the growing poverty. The population started paying a long time ago, not only for the fight between Trump and Erdogan, but for the useless construction projects, for the disastrous military adventures, for the war in Kurdistan, for the corruption and outrageous living expenses of those close to the president. The Turkish people are at risk of paying even more dearly to reimburse the western banks. It is not clear how much longer Erdogan will be able to hide the fragility of his economy, and of his regime.