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21 May, 2024
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What's left for the Turkish Cypriot economy after 2021

Inflation is rampant and prices are high in the Occupied areas resulting in accumulated socio-economic problems

Nikos Stelgias

Nikos Stelgias

Shortly before the pandemic began, Turks and foreign analysts warned of the effects of the Erdogan government's wrong moves and decisions on the economy.

At the end of 2019, at a time when experts were sounding the alarm for the future of the Turkish economy, the US dollar in the Turkish economy hovered at 7 points. After 24 months, the dollar in the Turkish market exceeded 11 points. And this is despite the recent interventions in the market.

In recent months, large portions of the Turkish Cypriot community have been unable to meet their basic financial obligations and needs.

The unprecedented slump in the value of the Turkish pound, which continued in 2021, amid the pandemic, is affecting Turkey and the Turkish Cypriot community, which depends on Ankara in many ways. In 2021, the slump has left behind accumulated socio-economic problems in Turkey and the Occupied Territories, with experts warning once again that the means of intervention by the Turkish government and the Turkish leadership are limited.

The obsession with interest rates

In the rest of the world, as in Turkey, 2021 began with the hope that the coronavirus vaccine would lead humanity out of the great health crisis. In the first weeks of 2021, the President of Turkey sent hopeful messages to his citizens, stressing that mass vaccinations would gradually lead Turkey to normalcy. Along with controlling the pandemic, the Turkish tourism industry would regain jobs and Turkish exports would increase.

In the context of this reasoning, Erdogan insisted on the correctness of a well-known and irrational economic recipe of low interest rates. Having replaced finance ministers and central bank executives, Erdogan has insisted since the beginning of last year that low interest rates were the only way to go for the Turkish economy. Thus, the new management of the Turkish Central Bank during 2021 moved forward with the reduction of interest rates.

The reduction of the interest rate raised the value of foreign currencies in the Turkish market. A few days ago, the euro's exchange rate against the pound exceeded 20 points. This development was accompanied by a significant increase in inflation and commodity prices. It is worth noting that at the same time the Turkish opposition warned of the consequences of the depletion of the Central Bank's monetary reserves.

The Erdogan government attempted to intervene in the unprecedented crisis with innovative ideas in the last weeks of 2021. Earlier last week, the Turkish government announced a new program that would automatically "compensate" for the devaluation of Turkish lira deposits against foreign currencies. At the same time, Turkish banks channeled large amounts of fresh funds into the Turkish market. According to Turkish analysts, some of the new funds channeled into the Turkish market arrived in Istanbul from abroad, such as Qatar, the United Arab Emirates and Venezuela. This information had not been officially confirmed or denied by Ankara at the time of writing.

Financial blows

The above-mentioned new maneuvers of the Turkish government in the field of economy, in the previous days, have resulted in the increase of the value of the Turkish pound against foreign currencies. The case of the euro-pound correspondence is typical. As underlined above, last Monday the euro in the Turkish market exceeded 20 points. Today, a week after the Erdogan government's new intervention in the Turkish economy, the euro has fallen to 13 points.

Analysts and economists argue that the temporary devaluation of foreign exchange in the Turkish market should not lead us to premature and erroneous conclusions. In the last twenty-four hours of 2021, the euro may be hovering 13-14 points against the lira, but a year ago it was around 8-9 points. In other words, the losses of the Turkish economy remained. The same goes for inflation and rising commodity prices.

In the Occupied Territories

Inflation and high prices are two phenomena that, at the end of 2021, have left thousands of households in a particularly difficult position. In recent months, large portions of the Turkish Cypriot community have been unable to meet their basic financial obligations and needs. The same applies to the Turkish Cypriot leadership, which is trying to manage the financial crisis with the limited "tools" it has. The "government" on the one hand is trying to pay the salaries and pensions of the "public". On the other hand, they are being criticized by the rise in prices of goods and services and the crisis that has erupted in the field of fuel and electricity.

It is worth noting that in the shadow of the aforementioned developments, a debate on the use of the euro has recently begun in the occupied territories. The latest information says Ankara is disturbed by this development. And for this reason, about twenty-four hours ago in Ankara, Erdogan met with Tatar and discussed the course of the economic crisis in the Occupied Territories. The latest information says that Erdogan has promised Tatar that the financial crisis will be controlled in early 2022 and that Ankara will continue to support the Turkish Cypriots financially.

This has all happened at a time when thousands of Greek Cypriots form long queues at roadblocks to go to the Occupied Territories on a daily basis. Greek consumers are rushing to take advantage of the pound devaluation and to supply the occupied areas with basic necessities at more favorable prices. Representatives of the Turkish Cypriot opposition, referring to this development, have criticized the Turkish Cypriot leadership on the grounds that its erroneous policies have turned the Occupied Territories into an "economic paradise" for the Greek Cypriots.

Cyprus  |  Turkey  |  economy

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