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Turkish method of fighting inflation

10 Oct 2018 17:44|Marcin Lipka

"Desperation - no other name can be given to the actions presented by the Turkish Ministry of Finance this week. The bold plan to fight inflation turned out to be a farce, which instead of reducing economic threats to the country only and exclusively increases them," writes Marcin Lipka, Conotoxia Senior Analyst.

Turkey is struggling with a serious economic crisis. Over the course of the year, the local currency lost 40% in relation to the dollar and prices rose by almost 25% compared to September last year. The crisis is almost entirely the result of the disastrous economic policy of President Recep Erdogan's team.

Huge infrastructural investments artificially boosted the economic situation and, as a result, basic macroeconomic indexes turned out to be extremely good. Unfortunately, the projects were financed with loans in dollars and started to strengthen. The situation was aggravated by rising energy prices and growing conflicts between Ankara and Washington.

Excessive economic stimulation, however, is nothing new. The crisis could have been solved relatively quickly by raising interest rates, reducing some of the infrastructure expenditure and seeking help from the IMF. However, Recep Erdogan chose an alternative path, which resulted in the current actions of the Ministry of Finance and the president's son-in-law.

Zabita - police that evoke fear in entrepreneurs

Before the publication of the plans counteracting inflation, it seemed that the government would present an outline of actions aimed at solving the structural problems. Unfortunately, we couldn't be more wrong. The head of the finance department, Berat Albayrak, appealed to companies to agree to reduce the prices for their products by 10% by the end of the year," reported the Financial Times.

To encourage this, a logo must be stuck on the shop window informing that this seller participates in the "total fight" against high prices. According to the intentions of the author, it is supposed to increase the number of customers in the shop.

Additionally, banks, which have recently granted loans, should also reduce their interest rates by 10%. However, another action of the Turkish authorities sounds funnier. The local police "Zabita" conduct checks in shops, looking for evidence of price fixing.

Bloomberg reports, according to data from the Turkish Ministry of Commerce, that by Monday thousands of goods in four thousand companies had been checked and some of them were asked in writing to answer why they had raised prices.

Following Venezuela's path

The Turkish authorities' actions are increasingly similar to those of President Nicolas Maduro's team in Venezuela. There, the authorities tried to impose prices from above and, at the same time, used the repressive measures to enforce them. The real paradox, however, is that Ankara's situation is far better than that of Caracas and the chaotic, aimed at socially applauded methods suggest that the only way to combat inflation can be to send the police into the shops.

10 Oct 2018 17:44|Marcin Lipka

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