The Central Bank of the Republic of Turkey saw its foreign currency reserves dwindle by $9.5 billion from 1 April through 12 May and its gold stores shrink by $7.9 billion ahead of mid-May’s first-round presidential election, the Financial Times calculated from the bank’s data.

President Recep Erdogan is running for re-election on his bizarre economic theories, including the discredited idea that low interest rates will indirectly bring down inflation, which ran at 44 percent in April, according to Erdogan’s government. Independent analysts have frequently found the government’s figure to be far below the real rate, as we reported in “Turkey: A Crime to Tell the Economic Truth?” (5 Oct 2021).

The rate had reached above 89 percent over the winter.

Seeing the prospect of Erdogan’s re-election, Turks changed their domestic lira currency for gold and dollars to shelter their purchasing power. The lira has cast off 60 percent of its value against the buck over the past two years.

Gold has become more popular after the government, in yet another attempt to shore up the lira, made it more difficult recently for Turks to buy foreign currency.

The central bank had $53.2 billion in foreign currency reserves on hand on 12 May, two days before the election, but at least 40 percent of it had been borrowed from the country’s commercial banks.

“The central bank is doing whatever it can” to shore up both the lira and Erdogan’s prospects “but that’s not a sustainable approach because there’s not much left in the tank in terms of reserves,” Enyer Erkan, chief economist at brokerage Dinamik Yatirim Menkul Degerler, said to the FT.

Erdogan did not win a majority of the 14 May vote so the election now moves to a second round on 28 May.

However, Erdogan won a majority of the votes cast with a showing stronger than predicted, which sank the lira further and took value out of other lira-denominated assets, the FT noted.

Even after borrowing from commercial banks, the central bank’s foreign currency reserves fell again because those assets are being used to finance Turkey’s near-record current-account deficit, the FT said.

PUBLISHER’S NOTE: We have documented Erdogan’s losing battle with economic reality in a series of reports, including:

• “Turkey’s Central Bank Governor Fired After Rate Hike” (23 Mar 2021)
• “Turkey’s Financial Markets Crash After Agbal Firing” (30 Mar 2021)
• “Turkey: Another Day, Another Central Bankster Fired” (1 Jun 2021)
• “Turkey: Interest Rates Down, Lira Crashing. War Next?” (19 Oct 2021)
• “Turkey’s Economy Continues to Implode” (14 Dec 2021)
• “Turkey’s Inflation Rate Nears 50 Percent” (8 Feb 2022)
• “Turkey’s Bonds Downgraded, Worse to Come” (22 Feb 2022)
• “Turkey’s Economy Weakens Further Under Erdogan’s Policy” (14 Jun 2022)

TRENDPOST: Erdogan is almost a shoo-in to win re-election after criminalizing his opposition, co-opting the nation’s news media, and neutering watchdog non-governmental organizations. 

As a result, he will remain in control of Turkey’s economic mess. Whether he will use his re-election as an excuse for a fresh start or take it as a validation of his ideas is impossible to predict.