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For Turkey, Erdogan Victory Brings More Risky Economic Policy

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The Turkish lira has hit a new low, and analysts see few improvements ahead as re-elected President Erdogan pursues unconventional economic policies.Since winning re-election, President Recep Tayyip Erdogan of Turkey has publicly doubled down on his idiosyncratic economic policies.“If anyone can do this, I can do it,” he declared in a victory speech last Sunday, referring to his ability to solve the country’s calamitous economic problems.His brash confidence is not widely shared by most analysts and economists.The Turkish lira dropped to a record low against the dollar this week, and foreign investors have been disheartened by the president’s refusal to stray from what is widely considered to be an eccentric economic course.Instead of combating dizzying inflation by raising interest rates and making borrowing more expensive — as most economists recommend — Mr. Erdogan has repeatedly lowered rates. He argues that cheap credit will boost manufacturing and exports.But his strategy is also fueling inflation, now running at an annual rate of 44 percent, and eroding the value of the Turkish lira. Attempts by the government to prop up the faltering currency have drained the dwindling pool of foreign reserves.As the lira’s value drops, the price of imported goods — like medicine, energy, fertilizer and automobile parts — rises, making it more expensive for consumers to afford daily costs. And it raises the size of debt payments for businesses and households that have borrowed money from foreign lenders.The national budget is also coming under increasing strains. The destructive earthquakes in February that ripped up swaths of southern Turkey are estimated to have caused more than a billion dollars in damage, roughly 9 percent of the country’s annual economic output.At the same time, Mr. Erdogan went on a pre-election spending spree to attract voters, increasing salaries for public sector workers and payouts for retirees and offering households a month of free natural gas. The expenditures pushed up growth, but economists fear that such outlays will feed inflation.President Erdogan in Istanbul last month. Foreign investors have been disheartened by his refusal to stray from what is widely considered to be an eccentric economic course.Sergey Ponomarev for The New York TimesAn effort to encourage Turks to keep their savings in lira by guaranteeing their balances against currency depreciations further adds to the government’s potential liabilities.Critics of the president’s economic approach were somewhat heartened by reports that Mr. Erdogan is expected this weekend to appoint Mehmet Simsek, a former finance minister and deputy prime minister, to the cabinet. Mr. Simsek is well thought of in financial circles and has previously supported a tighter monetary policy.“What Turkey really needs now is more exports and more foreign direct investment, and for that you have to send a signal,” said Henri Barkey, an international relations professor at Lehigh University. One signal could be Mr. Simsek’s appointment, he said.Mr. Barkey argues that Mr. Erdogan will have no choice but to make a U-turn on policy by winter, when energy import costs rise and some debt payments are due.Others are more skeptical that Mr. Erdogan will back down from his insistence that high interest rates fuel inflation. Kadri Tastan, a senior fellow at the German Marshall Fund, a public policy think tank based in Brussels, said that regardless of the cabinet’s makeup, he didn’t believe a policy turnaround was imminent.“I’m quite pessimistic about an enormous change, of course,” he said.To deal with the large external deficit and depleted central bank reserves, Mr. Erdogan has been relying on allies like Russia, Qatar and Saudi Arabia to help bolster its reserves by depositing dollars with the central bank or extending payment deadlines and discounts for imported goods like natural gas.In a note to investors this week, Capital Economics wrote that any optimism about a policy shift is likely to be short-lived: “While policymakers like Simsek would probably pursue more restrained fiscal policy than we had envisaged, we doubt Erdogan would give the central bank license to hike policy rates to restore balance to the economy.”Turkey’s more than $900 billion economy makes it the eighth largest in Europe. And Mr. Erdogan’s efforts to position himself as a power broker between Russia and the European allies since the war in Ukraine began has further underscored Turkey’s geopolitical influence.Mr. Erdogan, who has been in power for two decades, built his electoral success on growth-oriented policies that lifted millions of Turks into the middle class. But the pumped-up expansion wasn’t sustainable.As the lira’s value drops, the price of imported goods rises.Sergey Ponomarev for The New York TimesThe borrowing frenzy drove up prices, spurring a cost-of-living crisis. Still, Mr. Erdogan persisted in lowering interest rates and fired central bank chiefs who disagreed with him. The pandemic exacerbated problems by reducing demand for Turkish exports and limiting tourism, a large source of income.Mr. Erdogan is likely to keep up his expansionary policies until the next local elections take place next year. Until then, Hakan Kara, the former chief economist of the Central Bank of Turkey, said the country would probably just “muddle through.”“Turkish authorities will have to make tough decisions after the local elections, as something has to give in eventually,” Mr. Kara said. “Turkey has to either switch back to conventional policies, or further deviate from the free market economy where the central authority manages the economy through micro-control measures.”“In either case,” he added, “the adjustment is likely to be painful.” More

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    Russia Sidesteps Western Punishments, With Help From Friends

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    A surge in trade by Russia’s neighbors and allies hints at one reason its economy remains so resilient after sweeping sanctions.WASHINGTON — A strange thing happened with smartphones in Armenia last summer.Shipments from other parts of the world into the tiny former Soviet republic began to balloon to more than 10 times the value of phone imports in previous months. At the same time, Armenia recorded an explosion in its exports of smartphones to a beleaguered ally: Russia.The trend, which was repeated for washing machines, computer chips and other products in a handful of other Asian countries last year, provides evidence of some of the new lifelines that are keeping the Russian economy afloat. Recent data show surges in trade for some of Russia’s neighbors and allies, suggesting that countries like Turkey, China, Belarus, Kazakhstan and Kyrgyzstan are stepping in to provide Russia with many of the products that Western countries have tried to cut off as punishment for Moscow’s invasion of Ukraine.Those sanctions — which include restrictions on Russia’s largest banks along with limits on the sale of technology that its military could use — are blocking access to a variety of products. Reports regularly filter out of Russia about consumers frustrated by high-priced or shoddy goods, ranging from milk and household appliances to computer software and medication, said Maria Snegovaya, a senior fellow for Russia and Eurasia at the Center for Strategic and International Studies, in an event at the think tank this month.Even so, Russian trade appears to have largely bounced back to where it was before the invasion of Ukraine last February. Analysts estimate that Russia’s imports may have already recovered to prewar levels, or will soon do so, depending on their models.In part, that could be because many nations have found Russia hard to quit. Recent research showed that fewer than 9 percent of companies based in the European Union and Group of 7 nations had divested one of their Russian subsidiaries. And maritime tracking firms have seen a surge in activity by shipping fleets that may be helping Russia to export its energy, apparently bypassing Western restrictions on those sales.While Western countries have not banned the shipment of consumer products like cellphones and washing machines to Russia, other sweeping penalties were expected to clamp down on its economy. They include a cap on the price that Russia can charge for its oil as well as restricted access to semiconductors and other critical technology.Companies like H&M halted operations in Russia after the invasion of Ukraine, but the economy has proved resilient.Maxim Shipenkov/EPA, via ShutterstockSome companies, including H&M, IBM, Volkswagen and Maersk, halted operations in Russia after the invasion, citing moral and logistical reasons. But the Russian economy has proved surprisingly resilient, raising questions about the efficacy of the West’s sanctions. Countries have had difficulty reducing their reliance on Russia for energy and other basic commodities, and the Russian central bank has managed to prop up the value of the ruble and keep financial markets stable.On Monday, the International Monetary Fund said it now expected the Russian economy to grow 0.3 percent this year, a sharp improvement from its previous estimate of a 2.3 percent contraction.The I.M.F. also said it expected Russian crude oil export volume to stay relatively strong under the current price cap, and Russian trade to continue being redirected to countries that had not imposed sanctions.Most container ships have stopped ferrying goods like phones, washing machines and car parts into the port of St. Petersburg. Instead, such products are being carried on trucks or trains from Belarus, China and Kazakhstan. Fesco, the Russian transport operator, has added new ships and new ports of call to a route with Turkey that transports Russian industrial goods and foreign appliances and electronics between Novorossiysk and Istanbul.Sergey Aleksashenko, former deputy minister of finance of the Russian Federation, said at an event this month that 2023 would be “a difficult year” for the Russian economy, but that there would be “no catastrophe, no collapse.”Some parts of the Russian economy are struggling, he said, pointing to car factories that shut down after being unable to secure parts from Germany, France, Japan and South Korea. But military expenditures and higher energy prices helped prop it up last year.“We may not say that Russian economy is in tatters, that it is destroyed, that Putin lacks funds to continue his war,” Mr. Aleksashenko said, referring to President Vladimir V. Putin. “No, it’s not true.”Russia stopped publishing trade data after its invasion of Ukraine. But analysts and economists can still draw conclusions about its trade patterns by adding up the commerce that other countries report with Russia.The International Monetary Fund said it expected Russian crude oil exports to stay relatively strong despite a Western price cap. Andrey Rudakov/BloombergMatthew Klein, an economics writer and a co-author of “Trade Wars Are Class Wars,” is one of the people drawing conclusions about this Russia-size hole in the global economy. According to his calculations, the value of global exports to Russia in November was just 15 percent below a monthly preinvasion average.Global exports to Russia most likely fully recovered in December, though many countries have not yet issued their trade data for the month, he said.“Most of that recovery has been driven overall by China and Turkey particularly,” Mr. Klein said.It’s unclear how much of this trade violates sanctions imposed by the United States and Europe, but the patterns are “suspicious,” he said. “It would be consistent with the idea that there are ways of trying to get around some of the sanctions.”Silverado Policy Accelerator, a Washington nonprofit, recently issued a similar analysis, estimating that the value of Russian imports from the rest of the world had exceeded prewar levels by September.One of the case studies in that report was the jump in Armenian smartphone sales. Andrew S. David, the senior director of research and analysis at Silverado, said the trends reflected how supply chains had shifted to continue providing Russia with goods.Samsung and Apple, previously major suppliers of Russian cellphones, pulled out of the Russian market after the invasion. Exports of popular Chinese phone brands, like Xiaomi, Realme and Honor, also initially dipped as companies struggled to understand and cope with new restrictions on sending technology or making international payments to Russia.But after an “adjustment period,” Chinese brands started to take off in Russia, Mr. David said. Overall Chinese exports to Russia reached a record high in December, helping to offset a steep drop in trade with Europe. Apple and Samsung phones also appeared to begin to find their way back to Russia, rerouted through friendly neighboring countries.“Armenia is certainly not the only one,” Mr. David said. “There’s a lot coming through central western Asia, Turkey and the former Soviet republics.”Shipments to Russia of other products, like passenger vehicles, have also rebounded. And China has increased exports of semiconductors to Russia, though Russia’s total chip imports remain below prewar levels.President Vladimir V. Putin at a military training facility in Russia. Military expenditures and higher energy prices helped prop up the Russian economy last year.Pool photo by Mikhail KlimentyevOne major open question is how effectively the Western price cap will hold down Russia’s oil revenue this year.The cap allows Russia to sell its oil globally using Western maritime insurance and financing as long as the price does not exceed $60 per barrel. That limit, which is essentially an exception to Group of 7 sanctions, is designed to keep oil flowing on global markets while limiting the Russian government’s revenue from it.Some analysts have suggested that Russia is finding ways around the effort by using ships that do not rely on Western insurance or financing.Ami Daniel, the chief executive of Windward, a maritime data company, said he had seen hundreds of instances in which people from countries like the United Arab Emirates, India, China, Pakistan, Indonesia and Malaysia bought vessels to try to set up what appeared to be a non-Western trading framework for Russia.“Basically, Russia has been gearing up toward being able to trade outside of the rule of law,” he said.Mr. Daniel said his firm had also seen a sharp uptick in shipping practices that appeared to be Russian efforts to contravene Western sanctions. They include transfers of Russian oil between ships far out at sea, in international waters that are not under the jurisdiction of any country’s navy, and attempts by ships to mask their activities by turning off satellite trackers that log their location or transmitting fake coordinates.Much of this activity had been taking place in the mid-Atlantic Ocean. But after media coverage of suspicious practices in this region, the hub moved south, off the coast of West Africa, Mr. Daniel said.“They’re exploding,” he said of deceptive shipping practices. “It’s happening at an industrial scale.”So far, the oil price cap appears to be accomplishing its goal of reducing the price that Russia can charge while keeping global supplies flowing. But it remains to be seen whether this shadow fleet of ships is big enough to allow Russia to buy and sell oil outside the cap, said Ben Cahill, a senior fellow at the Center for Strategic and International Studies, during a January panel discussion.“If that fleet is big enough for Russia to really operate outside the reach” of the Group of 7 countries, the cap probably “won’t have the kind of leverage that policymakers wanted,” Mr. Cahill said. “I think we should know within a couple of months.”Alan Rappeport More

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    How Inflation Affects Turkey's Struggling Economy

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    Even before the pandemic, Turkey was trying to ward off financial meltdown. The crisis has accelerated as President Recep Tayyip Erdogan has doubled down on his unorthodox policies.The signs of Turkey’s disastrous economy are all around. Long lines snake outside discounted bread kiosks. The price of medicine, milk and toilet paper are soaring. Some gas stations have closed after exhausting their stock. Angry outbursts have erupted on the streets.“Unemployment, high living costs, price increases, and bills are breaking our backs,” the Confederation of Progressive Trade Unions said last month.Even before the coronavirus pandemic and supply chain bottlenecks began walloping the world’s economies nearly two years ago, Turkey was trying to ward off a recession as it struggled with mountainous debt, steep losses in the value of the Turkish lira, and rising inflation. But in recent weeks that slow-moving train wreck has sped up with a ferocious intensity. And the foot that’s pushing hardest on the accelerator belongs to the country’s authoritarian president, Recep Tayyip Erdogan.Why is this happening now?Turkey’s economic problems have deep roots but the most recent crisis was caused by Mr. Erdogan’s insistence on lowering interest rates in the face of galloping inflation — precisely the opposite tactic of what economists almost universally prescribe.Mr. Erdogan, who has ruled Turkey for 18 years, has long resisted that particularly painful prescription, but his determination to keep cutting interest rates even as the country’s inflation rate tops a staggering 21 percent appears to be pushing Turkey past a tipping point.Normally, investors and others look to a nation’s central bank to keep inflation in check and set interest rates. But Mr. Erdogan has repeatedly shown that if Turkey’s central bankers and finance ministers won’t do what he wants, he will get rid of them, having already fired three in two years.The value of the lira has nose-dived in recent weeks, and on Monday hit a record low — reaching 14.3 to a dollar, from about 7 to the dollar earlier this year — pushing some businesses and households that have borrowed money from abroad into bankruptcy. The currency’s steep decline means prices for imported goods keep rising. Shortages are common and people are struggling to afford food and fuel. The youth unemployment rate is 25 percent. The president’s popularity is sinking and his opponents have become emboldened.With an election coming up in 18 months, Mr. Erdogan seems convinced that his strategy will enable the Turkish economy to grow out of its problems. Most economists, however, say a crash is more likely.When did Turkey’s economic problems begin?“Interest rates make the rich richer, the poor poorer,” the Turkish President Recep Tayyip Erdogan said in a recent interview.Antonio Masiello/Getty ImagesMr. Erdogan’s aggressive pro-growth strategies have worked for him before. Since he began governing Turkey in 2003, he has undertaken expensive infrastructure projects, courted foreign investors and encouraged businesses and consumers to load up on debt. Growth took off.“Turkey was considered to be an economic miracle” during the first decade of Mr. Erdogan’s rule, said Kadri Tastan, a senior fellow at the German Marshall Fund based in Brussels. Poverty was sliced in half, millions of people swelled the ranks of the middle class, and foreign investors were eager to lend.But Mr. Erdogan’s relentless push to expand became unsustainable. Rather than pull back, however, the giddy borrowing continued.The increasingly unstable economy was caught in a bind. High interest rates attracted foreign investors to accept the risk and keep lending, but they would stunt growth. Mr. Erdogan was unwilling to accept that trade-off, and continued to support cheap borrowing as inflation took off and the currency’s value declined.And he insists that high interest rates cause inflation — even though it is low interest rates that put more money into circulation, encourage people to borrow and spend more, and tend to drive up the prices.“Erdogan has his own economic philosophy,” said Henri Barkey, a fellow at the Council on Foreign Relations.The economy seesawed between these conflicting goals until 2018 when growing political tensions between Turkey and the United States caused the value of the lira to topple.The political standoff eased, but the underlying economic problems remained. Mr. Erdogan kept pushing state banks to offer cheap loans to households and businesses and the borrowing frenzy continued. “Things never really normalized,” said Selva Demiralp, an economist at Koc University in Istanbul.When the chief of the central bank resisted pressure from the president to lower the 24 percent interest rate in 2019, Mr. Erdogan fired him, the beginning of a pattern.To prop up the lira, Turkish banks began selling off their reserves of dollars. Those stocks of dollars are now running low.The global economic slowdown caused by the coronavirus pandemic has added to the strains by limiting the sales of Turkish goods around the world. Tourism, which was one of Turkey’s most dynamic sectors, has also been badly hit.What is President Erdogan’s approach to interest rates and what do economists say?A protest against the economic policies of the government in Istanbul on Sunday.Murad Sezer/ReutersBy keeping interest rates low, Mr. Erdogan argues that consumers will be more eager to keep shopping and businesses will be more inclined to borrow, invest money in the economy and hire workers.And if the lira loses value against the dollar, he says, Turkey’s exports will simply become cheaper and foreign consumers will want to buy even more.That is true to some degree — but it comes at a heavy price. Turkey is quite dependent on imports like automobile parts and medicine, as well as fuel and fertilizer and other raw materials. When the lira depreciates, those products cost more to buy.At the same time, Mr. Erdogan’s disdain for conventional economic theory has scared off some foreign investors, who had been eager to loan Turkish businesses hundreds of millions of dollars but now are losing faith in the currency.And the lower rates go, the faster inflation rises. Over the past year, the lira has lost more than 45 percent of its value, and the official inflation rate has surged past 20 percent, although many analysts believe the rate on the streets is much higher.By comparison, an inflation rate of 6.8 percent so far this year in the United States (the highest in nearly four decades) and a 4.9 percent rate in the eurozone are enough to set off alarms.In Turkey, skyrocketing prices are causing misery among the poor and impoverishing the middle class.“We can’t make a living,” said Mihriban Aslan, as she waited on a long line to buy bread in Istanbul’s Sultangazi district. “My husband is 60 years old, he can’t work much now.” He has a small pension of 1,800 lira — which at the moment is worth about $125. “I sometimes do needle work at home to bring in extra money,” she said.Businesses would rather hoard goods than sell them because they don’t think they will be able to afford to replace them.Ismail Arslanturk, a 22-year-old cashier at a neighborhood grocery shop, complained that the price of green lentils has nearly doubled. “I don’t believe the economy will be fixed after this point,” said Mr. Arslanturk, who added he was forced to leave high school to help support his family. “I am hopeless.’’A currency exchange office in Turkey. Over the past year, the lira has lost more than 45 percent of its value.Emrah Gurel/Associated PressWhat has Erdogan’s response been to the intensifying crisis?The president has doubled down on his approach, asserting he will “never compromise” on his opposition to higher interest rates. “Interest rates make the rich richer, the poor poorer,” he said in an interview on national television last month. “We have prevented our country from being crushed in such a way.”The president has invoked Islamic precepts against usury and referred to interest charges on loans as the “mother and father of all evil,” and blamed foreign interference for rising prices. Analysts like Mr. Barkey of the Council on Foreign Relations said that such comments are primarily aimed at appealing to more conservative religious segments of the country that represent the core of Mr. Erdogan’s support.Turkey’s fundamental problem, Mr. Barkey maintains, is that it has an overly confident ruler who has been in power for a long time. “He believes in his omnipotence and he’s making mistakes,” Mr. Barkey said, “but he’s so surrounded by yes men that nobody can challenge him.” More

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    Inside a Turkish Camel-Wrestling Festival

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    The arena was filled with raucous spectators who, in tiered seating, surrounded the wrestling pit below. Camels were paraded in and out of the ring, dolled up in their best regalia, their elaborate saddles noting their names, origins and their trainers or owners.Competing camels wrestle during the Selcuk camel wrestling festival in 2017. Trainers and owners stand close at hand to prevent the matches from becoming too violent.Held in mid-January on Turkey’s Aegean coast, the annual camel-wrestling festival near the town of Selcuk almost overpowers the senses. When I attended the event in 2017, sausages sizzled on stalls surrounding the arena; old men chain-smoked cigarettes while sipping down beer or raki, a traditional Turkish drink made with aniseed. There was the low din of chitchat, the occasional collective gasp and, of course, the smell of damp camel’s hair and excrement. (The festival was canceled this year because of the coronavirus pandemic.)Camels naturally wrestle in the wild, and staged matches aren’t allowed to get too boisterous. A camel wins by making its opponent scream, fall or retreat, and trainers remain close at hand to ensure neither party is injured. Winners are rewarded with a mass-produced Turkish carpet, and, despite betting being illegal, low-level wagers often take place between fans, either in the form of a few drinks or a few Turkish lira.A vendor prepares a camel-meat sandwich at a stall near the wrestling arena. Many spectators pair their food with raki, a traditional Turkish drink made with anise.Well suited to desert conditions, camels were used in medieval times as pack animals along the Silk Road. They’re still used by nomadic tribes in much of Central and South Asia — in Afghanistan, Pakistan and Iran. Occasionally they’re still used in Turkey.With a legacy rooted in ancient Turkic tribes, the community of Turkish camel owners, trainers and dromedary lovers is still vibrant and competitive. But the festival has become something of a niche expression in modern Turkey. These days, it seems to be as much about socializing, gossiping and drinking as it is about the camels battling it out in the sand.Fans encircle the wrestling arena.As a former camel owner myself (more on that later), I was particularly eager to attend the festival since moving to Turkey almost a decade ago. Hip young Istanbul friends moaned that the practice was an obscure and mawkish event, similar to Turkish oil wrestling, something that only tourists know or care of. To my surprise, though, the spectators were almost all Turks.Camels are often adorned with elaborate saddles that note their names, origins and their trainers or owners.The camel men are a lively bunch and care deeply about their animals. Several trainers, such as Yilmaz Bicak, slept with the camels overnight in a barn on the outskirts of town, to ensure their well-being and deter thieves.Competition camels are generally worth tens of thousands of dollars, with prized camels commanding prices above $100,000.Vendors sell scarves that are embroidered with camel imagery.The animals used in wrestling events are known as Tulu camels — a breed that results from mating a Bactrian (two-humped) camel with a dromedary (one-humped) camel — and are bred specifically for the competitions.The event can draw crowds of up to 20,000, though in 2017 the numbers were lower because of recent security concerns and the threat of rain.The camels wrestle once a day, and each match lasts around 15 minutes — again, to protect the animals’ welfare. Before entering the ring, the male camels are brought close to a female camel, but the animals are not allowed to touch, resulting in a sexual tension which the trainers say provides the males with extra strength.Competing camels are kept outside the wrestling arena in between their matches.Camel wrestling has fallen in and out of favor over the years. Largely discouraged in the 1920s, the practice saw a rebirth in the 1980s, as interest in Turkey’s traditional cultures grew.More recently, the events have come under criticism by animal rights activists, who persistently claim that the event can be harmful to the camels.Competing camels are led to the wrestling arena.As for my camel story: Back in 2007, as a young and carefree backpacker, I spent several months traipsing through Syria, my heart set on exploring the barren lands and ancient archaeological sites in the east of the country. Along the way, I bought Alfie, a gracious and handsome dromedary camel.I’d initially planned to ride to Petra, in southern Jordan, but, shortly after reaching Damascus, I struggled to obtain paperwork for Alfie to cross the Syrian-Jordanian border. Alas, Syrian bureaucracy prevailed, and, after declining an offer from a Russian circus visiting Damascus, I was forced to sell Alfie to a Bedouin family. (Alfie has since been renamed Bradley and, last I heard, continues to roam the eastern Syrian desert.)Camel wranglers prepare themselves and their equipment before the start of the festival.As the festival draws to a close, the stall holders selling photos, calendars, videotapes and general camel paraphernalia pack up for the year. The animals are loaded up onto large trucks and driven back to their corner of the Aegean region, or further afield, to prepare for the next set of competitions.Yilmaz Bicak with his camel.Bradley Secker is a photojournalist based in Istanbul. You can follow his work on Instagram and Twitter.Follow New York Times Travel on Instagram, Twitter and Facebook. And sign up for our weekly Travel Dispatch newsletter to receive expert tips on traveling smarter and inspiration for your next vacation. More