Inflation and the cost-of-living crisis dominates the agenda in Turkey, ahead of local elections at the end of March. Year-on-year inflation reached 67 per cent in February, according to the Turkish Statistical Institute, breaking a 15-month record and puncturing hopes that high interest rates would put a lid on rapidly increasing prices.

For years, president Recep Tayyip Erdogan was a bitter opponent of high interest rates. ‘Interest rates are the reasons, inflation is the result,’ he roared regularly at political rallies, defying traditional economists. He cites Islamic traditions whereby high interest rates amount to usury, to justify his unorthodox monetary policies.

Erdogan was a bitter opponent of high interest rates

‘Erdogan really seemed to believe in this baseless thesis personally,’ says Hayri Kozanoglu, a Turkish economist. ‘But the Islamic rhetoric was also an excuse to keep interest rates low and boost the economy ahead of the general elections in May 2023.’

The Turkish central bank also burned through all of its foreign currency reserves to artificially keep the Turkish lira afloat.

In the presidential election in May 2023, Erdogan won another five years in office, extending an unbroken rule that began in 2002. But in June 2023 he appointed a new financial team headed by Wall Street veteran and conventional economist Mehmet Simsek. The central bank hiked interest rates from 8.5 to 45 per cent within eight months. While investors cheered the new direction, inflation refused to budge. Since the election, the lira has dropped from 25 to 40 against the British pound, and continues to reach record lows almost each day.

With the local elections around the corner, Erdogan embarked on a new spending spree. The monthly minimum wage was raised for the second time in a year, up to 17,000 lira (£420) – a 99 per cent increase from January 2023. ‘These big minimum wage hikes offer temporary relief but do not improve people’s purchasing power in the long run,’ says Kozanoglu. He points out that while the minimum wage has more or less kept up with inflation, the income of the middle class drastically decreased. Over a third of the population are now on the minimum wage.

The cost-of-living crisis hit the large cities hardest. Huseyin Dasdogen lives in a working class neighbourhood on the outskirts of Istanbul. His pension is currently 11,500 lira (£280). To get by, he sells bags and belts on the streets. ‘We can’t even buy meat or cheese these days,’ he complains. ‘Making ends meet became incredibly difficult. For those who have to pay rent, it’s next to impossible.’

The three cities that saw the highest increase in real estate prices in the world were Ankara, Izmir and Istanbul, according to a study by the company Knight Frank in August last year. On average, housing prices in Turkey soared by 133 per cent within a year. Due to unaffordable rents and fears of a devastating earthquake, after last year’s quakes in the east, the population of Istanbul decreased in 2023. This has only happened once before in the country’s history.

Turks are migrating, not only from the cities to the countryside, but also leaving the country altogether to look for a better future in the west. As Schengen visas become increasingly difficult to get, desperation drives many to look for alternative ways to reach Europe. According to the European Union Agency for Asylum’s annual report, issued last week, Turkish citizens were the third largest group to apply for asylum in EU countries, a total of 101,000 people, outnumbered only by Syrians and Afghans. Tens of thousands of Turks have also entered the US via Mexico in the past few years.

‘It is not just the economy that is driving Turkish people abroad,’ says Kozanoglu. ‘It is also the lack of democracy and freedom. People completely lost faith in meritocracy, especially in the public sector. Those who are not from Islamist sects and other ruling party [AKP] networks, see little future here.’ The lira’s currency crisis started in 2018, under finance minister Berat Albayrak, who also happens to be Erdogan’s son-in-law.

‘Reducing inflation is not something that will happen overnight,’ Erdogan said at a recent election rally, asking his supporters to be patient. Foreign investors are still moderately confident in the current financial leadership of the government, projecting a slow but gradual recovery over the next few years. But their seats look far from stable, under a president who has had four different finance ministers and five governors of the central bank just within the last five years.