Turkey’s Still Dealing With the Aftershocks—of Erdogan’s Economy

ISTANBUL—Down the hill from one of Istanbul’s most affluent neighborhoods, full of restaurants, tourists, and high-end hotels, Aliye Goga sits in front of her small, run-down shop, which sells coal. She inhales the last puffs of a cigarette through a clenched, sullen face.

“I can’t afford to keep my shop open any longer. I’ve been waiting for better times, but they are not coming, so I’m closing permanently,” she said.

The 47-year-old had been running the business for the past 15 years with her husband, who recently passed away. Things had started well, but growing inflation over the past few years slashed Goga’s income, she said. “Even in winter, I didn’t earn more than 1,500 lira [currently about $78] a month. People here weren’t even able to afford enough food without borrowing money, and certainly not coal. I lost most of my customers. We’ve seen the rich getting richer, and the poor, poorer. I don’t want to give up, but there’s no point to keep going,” she said.

Aliye Goga (far right) and neighbors, sitting outside her small shop selling charcoal in Istanbul’s Tarlabasi neighborhood on March 30.

Goga is one of the economic casualties of what analysts and economists call the unorthodox economic policies of Turkish President Recep Tayyip Erdogan, which were meant to keep growth robust but have triggered an acute inflation and cost-of-living crisis—one that could be particularly painful with elections just a month away. Several polls last month saw opposition candidate Kemal Kilicdaroglu ahead in the race, but despite economic difficulties and criticism over February’s earthquake response, Erdogan’s voter base is more solid than his economy.

When Erdogan first came to power two decades ago, then as prime minister, Turkey’s economy was just beginning its recovery from the 2001 economic crisis. Then it went into overdrive for a decade, propelling the country into the higher reaches of upper middle-income status and slashing poverty, according to the World Bank. Turkey’s per capita GDP went from about $3,600 when Erdogan took over to about $12,600 a decade later—and then began slipping, exacerbated by a miniature population bump early in the past decade.

Searching for a bellows for an economy that was just starting to come out of the COVID-19 pandemic, Turkey—like many other countries—slashed interest rates to make investment cheaper and growth more likely. Unlike many other central banks, after inflation started running rampant, topping out at an estimated 85 percent annual rate late last year, Erdogan insisted that interest rates keep falling to keep the illusion of growth alive. And that, economists say, has come at a steep cost for the lira—and the Turkish people. The lira has plummeted from a high within spitting distance of parity with the U.S. dollar at the time of the 2008 global financial crisis to being worth a nickel today.

Suban Cicek (left) sits with neighbors in Tarlabasi on March 30.

“The last few years have become more difficult financially,” said Suban Cicek, a 35-year-old father of six, gulping glass after glass of sugary black tea. He lives in the same lower-income neighborhood of Tarlabasi as Goga. “The government has always been encouraging us to have a lot of children. Now some of these kids might have to resort to begging or becoming thieves because their families can’t even afford food anymore.”

Now, with elections on the horizon, the nation is trying to stabilize the lira and fight inflation while also dealing with the economic aftershocks of a traumatic earthquake that leveled parts of southeast Turkey earlier this year.

“The government has introduced regulations that have helped stabilize our currency ahead of the elections, but this stability is an illusion and doesn’t reflect the actual market price of the Turkish lira. It’s a temporary relief, aided in part by Russian and Gulf investments, but it’s not a long-term solution,” said Turkish economist Mustafa Sonmez.

The Turkish Central Bank cut rates after the earthquake, despite high inflation, but now aims to keep rates steady until higher prices are reined in. Economists broadly expect growth to slow this year, from more than 5 percent to about 3 percent, but also expect annual inflation to fall from recent highs to 40 percent or less by the end of the year.

While many Turks, like Goga, have struggled to make ends meet, many of those who still have savings to protect have started investing in what they consider a safer bet than hard cash—gold being one of the choice alternatives. Last year, as the lira hit a 24-year-low, Turkey’s central bank emerged as the world’s biggest gold buyer, with individual Turks also grasping for the precious metal.

Third-generation gold trader Zahit Akbas’s shop is in the midst of Istanbul’s bustling Grand Bazaar, one of the world’s oldest covered markets, with its ancient archways dating back to the early Ottoman period. Akbas’s family has been running the business for almost four decades, and traditionally, mostly older people bought gold. In recent years, demographics have shifted.

“Even though the last few years have seen the highest inflation in a long time, people keep buying gold, and I’m now mostly seeing younger people—those in their 30s—investing. They don’t trust the currency they are earning anymore, so they exchange it into gold,” Akbas said. He was standing behind his shop’s wooden counter with several ingots of gold in front of him—much of it, he said, mined in Turkey.

“I’ve seen people spend all of their savings on gold,” he said. “These days, it’s one of the safest bets.”

For those affected by the devastating earthquakes in southeastern Turkey two months ago, which killed more than 50,000 and left millions homeless, investing in gold might not be in the cards right now because sheer financial survival is. Ihat Tastal, a father of two in his late 40s, said that after surviving the earthquake with his family, constant financial worries keep him up at night. Living in the southeastern city of Adiyaman, Tastal had been earning a steady income, and two years ago, took out a mortgage to purchase an apartment—advertised as earthquake-proof—in a brand new housing block.

Destruction from the devastating earthquakes earlier this year is seen outside President Recep Tayyip Erdogan’s AKP office in Adiyaman, pictured on March 11.

Ihat Tastal stands in front of his partially collapsed apartment block in Adiyaman, Turkey, on March 11. He took out a mortgage to buy the apartment—advertised as earthquake-proof—two years ago.

The building turned out to be as shock-proof as his finances. On Feb. 6, Tastal’s apartment, like countless other buildings, partially collapsed, and is now marked for demolition. “The government has offered financial support and aid. Our mortgage payments are also paused for the next six months,” he said. “But I worry that I will eventually have to repay the money I borrowed—even though my family will never get to live in our new apartment again,” he said, adding that he hoped regulations around loans taken out for now-collapsed buildings might be adjusted. Erdogan has vowed to rebuild homes within a year.

The World Bank estimates direct physical damages from the earthquake at $34.2 billion, but Sonmez, the economist, believes total reconstruction and recovery, as well as costs for people’s temporary relocation and replacement of their assets, could add up to a much higher bill.

“It might come to at least $100 billion,” he said. “Whatever happens during next month’s elections, the new government will be burdened with several difficult tasks, including the earthquake’s—and the economy’s—recovery.”