May 26, 2019

Turkey Enters Recession, a Blow for Erdogan as Elections Near

Borrowing has become more expensive for Turkey and other emerging markets because investors have become wary of the risk, while rising interest rates and buoyant stocks have lured money back to the United States. Turkey has also been particularly hard hit by President Trump’s trade war. United States tariffs on Turkish steel imports are 50 percent, double the duties on steel from other countries.

Bankruptcies, meanwhile, rose in the last months of 2018, and inflation has remained over 20 percent for months.

Mr. Erdogan has ruled out turning to the International Monetary Fund for funds, emphasizing that he had taken Turkey out of an earlier program with the fund and paid off its debts. He has instead courted investment from Arab gulf countries and reduced some public spending.

Since a failed coup d’état two years ago that attempted to topple him, Mr. Erdogan has assumed more power over government agencies, including economic policy. He was re-elected in June and has brought all branches of government under the presidency.

He appointed his son-in-law, Berat Albyrak, as minister of finance and Treasury and through him has kept close control of the Central Bank. When Mr. Erdogan commented just before the election that he intended to be more involved with the bank, the lira sank to record lows.

The Central Bank halted the rout by lifting rates, but its integrity was in question. The Turkish currency lost 28 percent of its value in 2018.

The currency’s decline, as well as other factors, has hit Turks in their pocketbooks. Mr. Erdogan, who is personally leading his Justice and Development Party’s campaign for local elections, has opened subsidized markets stalls around the country to sell cheap vegetables to ease discontent.

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