In 2020, the financial situation began to deteriorate again. Instead of tightening the money supply, the central bank began to cut interest rates cuts to induce higher consumption and investment. And despite the adverse impact of COVID-19, Turkey achieved a growth of 1.8 per cent in 2020. As inflationary pressures began to build up, and the lira began to plunge. The situation further worsened in 2021 due to global supply chain bottlenecks and associated price hike. Once again, the CBRT reduced the interest rates from 19 per cent to 14 per cent between September and December. Though this pushed GDP growth, there was a drastic rise in inflation. Pursuing its unorthodox monetary policy, the government presented the “New Economic Model” (NEM) on 30 November 2021 which advocated low interest rates and measures to stabilise the weakening Turkish lira (TRY). The TRY plunged from 6.7 to a dollar to 18.6 lira to a dollar in December 2021. Consumer prices shot up as these were also affected by country’s dependence imports of basic products such as meat, fertilisers or metals, besides energy needs.

The government then resorted to a slew of ad hoc measure to stabilise the lira. These included a weird scheme promising to pay the difference in value of the currency’s fall against the dollar if people kept their savings in lira instead of dollars in the bank. But with inflation skyrocketing, the lira lost more than 20% of its value in the beginning of 2022. The CBRT reportedly sold $24 billion from its dwindling foreign currency reserves between January and March to prop up the lira but to no avail.

Erdogan hoped that cheap Turkish exports and tourism would generate enough foreign exchange to cover the current account deficit, stabilise the currency and bring down inflation. Then came the invasion of Ukraine by Russia as a rude shock.Türkiye is heavily dependent on Russian energy, trade and tourists. Ukraine too is a major source of grain imports and tourists. The war dramatically pushed up grain and oil prices. This year’s gas import bill of the country is expected to be as high as $40 billion. The Central bank has $15.96 billion in its reserves. Economist Paul Krugman describes Türkiye’s crisis as “a classic currency-and-debt crisis, of a kind we’ve seen many times.”

“At such a time, the quality of leadership suddenly matters a great deal. You need officials who understand what’s happening, can devise a response and have enough credibility that markets give them the benefit of the doubt. Some emerging markets have those things, and they are riding out the turmoil fairly well. The Erdogan regime has none of that.”

Anger against the regime is accumulating and people are taking to the streets in spontaneous protests. Earlier, people were frightened to speak against Erdogan. There was an atmosphere of fear as even an anti-Erdogan statement on social media could land one in prison. Even schoolchildren have not been spared for voicing opposition to his regime. But no more. The protestors have been raising slogans like: ‘We are sick and fed up with the AKP’ or ‘Those who created the crisis should pay’.

There have been more than a hundred strikes across Türkiye by workers in different sectors during the first two months of this year. The government has been forced to increase the minimum wage, but the workers are demanding increases in wages across the board.

In autumn last year, university students were up in arms in the streets against spiralling rents, and to demand access to public dormitories. The Barınamıyoruz (‘We Can’t Find Shelter’) protests started in Istanbul and quickly spread to universities all over the country. Thousands of students were arrested.

In April, pensioners from all over the country marched to Ankara, demanding an increase in pensions and a cap on prices of essentials. Farmers, too, have been blocking highways and roads with their tractors, protesting against the price hikes of energy and farm inputs like fertiliser.

The question is: Will Türkiye default on payment of its dues? Bankruptcies, unemployment and soaring prices, combined with a crashing lira, is a perfect recipe for a Sri Lanka-type disaster. Türkiye is most likely too big to go down. But if it does, many European banks and financial institutions, which fuelled the country’s unprecedented growth over the last two decades, have much to lose. And, with this coming at a time of global slowdown, Europe will have to bear the major brunt of Türkiye’s economic collapse.