Turkey promises bargains but inflation's impact can't be hidden

Beneath the surface, all is not well in a country where the official inflation rate is a whopping 78.6%

Abu Dhabi, UAE, March 5, 2018.  
Carpet Souk along Mina St. Abu Dhabi.
Noor Mohammed has been working for
Izmir Carpet Trading for 11 years now.  He is from Kabul, Afghanistan.
Victor Besa / The National
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The Rug Man at the hotel has had enough. After running a shop selling carpets at the coastal spot near Izmir, he is winding down. This, he says, will be his last season.

He had a good business, catering mainly to British tourists staying at the upmarket hotel. Then came two years of Covid and lockdowns, and no visitors. This year, the tourists are back, but unlike before, they’re being more careful with their cash and not spending on big ticket items — times are hard and getting harder in the UK.

Not that he seems too bothered. During the hiatus, being the sort of ducker and diver he is, he switched trades, developing six luxury villas with pools on the Black Sea, 200 kilometres from Istanbul. Now he’s building 15 apartments with sea views in the same place.

He’s confident that they, like the villas, will be snapped up by Turks. In confusion, I told him I thought the economy was shot and that Turks have no money.

He gave me a quizzical look, as if to say, are you stupid or what?

“Sure, some people, they are poor and suffering, but others, no. They are doing OK.”

To prove his point, we go to the local town, a seaside resort. When the taxi drops us off, the first sight that greets us is a line for the smart Italian ice cream stall. We join the queue — it’s hot, even in the early evening. Two scoops is 12 Turkish lira; for the four of us, that’s 48 lira, or just shy of £2.50 in total. Back home at the Italian deli, that would not buy one scoop, let alone eight.

People enjoy sea and sun at a beach in Izmir. Getty Images

The town is buzzing, full of affluent, middle-class Turks, many of them young. They do not appear at all bothered by theirs being a country where the official inflation rate is a whopping 78.6 per cent — possibly twice that, if you take into account recent jumps in fuel prices.

To those of us from the UK and most other foreigners, the prices are not steep; they’re a bargain. Turkey has rampant inflation but its currency is through the floor.

We pick up some things from the pharmacy and the bill comes to £10. At our local chemist in London, we’d expect to pay £25 to £30 for the same items. A prescription in Turkey is 24 lira, a little more than £1. My wife is so taken by how cheap everything is that she questions whether there is anything else we need? Now is the moment to load up.

Coming from the UK, where inflation is biting and the cost of living is rising, Turkey is a blessed relief. Take the taxi: when we stayed at the same hotel previously, the fare into town was 5 lira which translated then into £10. Today, it’s 40 lira, with inflation, but that is only £2 — such is the collapse in the value of the currency.

A view of the sunset in Izmir, Turkey. Anadolu Agency / Getty Images

For this imbalance, we have to thank President Recep Tayyip Erdogan’s unorthodox — some say bizarre — economic policies. Instead of deploying the conventional weapon of raising interest rates to combat inflation, Mr Erdogan has chosen to ignore the rising prices and taken the counterintuitive step of cutting interest rates to boost economic growth.

His central bank chief and other experts told him to take the standard route, but Mr Erdogan has led his nation down a different path. He believes higher interest rates cause higher prices. At the end of 2021, while others were raising interest rates or getting ready to do so, he ordered the Central Bank of the Republic of Turkey to cut them.

The lira fell to record lows and costs soared — this in a country that is dependent on imported raw materials, especially energy. Protests have grown and Mr Erdogan is now on his fourth central bank chief in four years.

Somehow though, Turkey’s economy has kept growing — its GDP was up by 11 per cent last year — so in that respect, he has been proved correct. The government is insisting, too, that inflation will fall towards the end of this year.

Turkey is beset by chronic short-termism, with businesses unable to plan ahead. Bloomberg

You wonder if other countries, notably Britain, are not looking at Mr Erdogan’s experiment and wondering. While they are under pressure to apply the brakes to slow inflation, he has simply gone and dismissed it.

He has also chosen to focus on the international stage, paying foreign visits and glad-handing, which may sound familiar to those in the UK. After spending almost two decades in power, however, he is facing an election in June next year that, if the early polls are correct, may not go his way.

But there is a considerable downside: Turkey is beset by chronic short-termism, with businesses unable to plan ahead and invest, because prices keep moving ever upwards. Some firms have even taken to not displaying their charges because they change so frequently. Established business relationships are eroding, with suppliers complaining they cannot wait the usual period to get paid when the value of their contract will have dropped again in that time.

As ever, the well-off are insulated from the chaos. Investments in property, hard currencies and precious metals are soaring. Those unable to hedge and dodge, however, are suffering. One recent poll found that more than a third of Turks are struggling to meet their basic needs.

These are not the third buying the Rug Man’s new properties, nor those in evidence in our hotel or the nearby resort. But then you notice that where once the breakfast buffet groaned with all manner of fresh, locally grown fruits, there are hardly any. That’s because the price of peaches, oranges, apples, bananas, lemons have shot up so much, they’re no longer regarded as staples.

When fruit becomes a luxury in a land as fecund as Turkey, then you know you have an underlying problem.

Published: July 26, 2022, 11:01 PM