Why is Turkey’s President Cutting Interest Rates, Spurring Inflation and Lowering the Value of the Lira?

Turkish President Recep Tayyip Erdoğan has been unequivocal in his crusade against interest rates, which he denounced in 2018 as “a tool of exploitation” analogous to the “heroin trade” and decried as “the mother and father of all evil.” Erdoğan’s fight against interest rates has gone beyond strong rhetoric and has extended to his intense pressure on the Turkish central bank and its monetary policy committee to reduce the policy rate.

The Turkish president’s unorthodox economic worldview reflects not only his long-held ideological convictions, but also peculiar dynamics of the country’s crony-capitalist economic order. On the ideological side, Erdoğan’s worldview goes beyond the traditional Muslim belief that riba (interest or usury) is haram (forbidden) and extends to an anti-Semitic conspiracy theory to which the Turkish president subscribes. Erdoğan has frequently voiced his opposition to the “interest rate lobby,” a thinly-veiled reference to a cabal of Jewish financiers committed to destroying Turkey’s economy in order to control the country.

On the nonideological side, a well-choreographed patronage network sustains the Turkish president’s ruling coalition, which depends on Erdoğan’s ability to inflate and sustain the real estate bubble at the core of his complex system for funding his political enterprise and distributing the spoils. This fragile order requires constant monetary stimulus to boost consumption and keep the president’s inner circle of business friends financially afloat.

Although this toxic mix of ideology and material self-interest has resulted in an unprecedented devaluation of the Turkish lira and double-digit inflation, Erdoğan doesn’t seem to have the capability to wean himself off his conspiracies or his cronies.

Aykan Erdemir is senior director of the Turkey program at the Foundation for Defense of Democracies and a former member of the Turkish parliament. Follow him on Twitter @aykan_erdemir. FDD is a Washington, D.C.-based, nonpartisan research institute focusing on national security and foreign policy.