The long and bitter fall: an account of events that shook the Turkish economy during September–December 2021

Abstract

The problems that the Turkish economy faced during the September-December 2021 period, which attracted a great deal of attention at home and abroad, was in essence a currency crisis with far-reaching implications for almost all aspects of the political economy. As the Central Bank reduced its policy rate from 19 percent in September to 14 percent in December through successive monthly announcements, the Turkish Lira (TL) experienced an unprecedentedly sharp depreciation-should one say collapse?-from 8.30 TL to the US dollar (US$) at the beginning of September to 8.86, 9.55, and 13.36, at the beginning of the successive months, and continued to fall daily to 17.50 TL on 20 December with no sign of a slowdown in sight. 1 The government attempted to halt this fall by selling a total of around US $6 billion of Central Bank reserves during the 1-17 December period, but to no avail. After the announcement by the government of a new scheme-exchange rate protected time deposits (ERPTD)-on the evening of 20 December, there was a sharp fall in the dollar/TL parity to 13.05 TL the following day which has stabilized at around 13.50 TL since then.The new scheme was aimed at reducing the demand for foreign currency by increasing the attractiveness of the Lira. It was intended to protect TL time depositors with three-month, six-month, and one-year terms against the depreciation of the Lira by guaranteeing to compensate them fully (in TL) for depreciation over and above their interest earnings. Whether it was this scheme alone that facilitated this sharp fall remains a matter of conjecture. The most plausible explanation offered so far is that on that day, the Central Bank and public sector banks together sold a total of around US$7 billion dollars. It seems that swap agreements with a number of Gulf *The author is a retired member of the Department of Economics at the Middle East Technical University.

The Political Economic Sources of Policy Non-design, Policy Accumulation, and Decay in Policy Capacity

“…The latest episode of the rate hikes-and-cuts, with the sustained low levels of interest rates, or the “long and bitter fall” (Şenses, 2022), was marked by the beginning of the tenure of the current CBRT governor, a former AKP parliamentarian, Sahap Kavciouglu in March 2021. The CBRT reduced interest rates rapidly from 19% to 14% in September 2021.…”

“…The result of the latest episode of interest rate cut caused a historic collapse of TL, which led to a skyrocketing inflation rate impoverishing the masses (Şenses, 2022). This last episode cut marked the culmination of a prolonged economic crisis that was initially triggered by the currency crisis in 2018, even if the challenge to the capital inflow-dependent credit-led growth model had begun to observe its limits since 2013 (Akçay & Güngen, 2022).…”

“…Besides, this case is intriguing for two reasons. First, the country has become a basket case of a major developing country that has been undergoing a currency crisis-induced economic crisis since mid-2018 (Akçay & Güngen, 2022; Orhangazi & Yeldan, 2021; Şenses, 2022). This crisis exposed financial and macroeconomic fragilities, and the decision-makers have experimented with haphazard instruments in response to the crisis.…”

In memoriam: Fikret Şenses (1947 – 2023)

“…He followed on the theme with several co-edited books and articles in the following years. His cooperation with Z. Öniş, in particular, resulted in many influential pieces (Öniş and Şenses, 2005, 2007, 2009, 2022; Öniş, Şenses and Bakır, 2013) that brought forth a thorough assessment of the neoliberal transformation of the Turkish economy from a critical perspective.…”

“…Şenses continued producing impactful academic work till the end, undeterred by his severely deteriorating health. His most recent piece in NPT on the stormy period that the Turkish economy went through during the last months of 2021 reached a worldwide audience quickly thanks to his insightful analysis of the macroeconomic events and their social impact (Şenses, 2022).…”