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Lately, world's famous newspapers constantly wrote opinions about Turkey and its economy. As a graduated Economics and Turkish citizen, I want to post about Turkey's economic problems.
What is the problem?
Well, we should start with 2008 crisis. Developed countries' central banks' pumped out cashes into emerging markets to pull the world off crisis. This means, a high amount of cash flows into emerging markets. This was a unique opportunity for countries who needed funding, such as Turkey, whose deficit is one of the highest in the world.
As the world recovers, developed countries' central banks decided to stop pumping out cashes, and hike a interest rate instead. As the developed countries hike interest rates, investors start losing their interest to emerging markets, and this time the cash flows from emerging markets to developed countries.
But, they should've known the world wouldn't be in crises forever, right? Well, yes. But Turkey didn't use this funding to increase its productivity but in construction, instead. There are plenty of reasons for this we can count: Construction and mega projects are really important for election. They also create new jobs within these projects. That's why the goverment choosed to finance construction instead of using funding in such sectors that will increase the productivity level. Also, it's the same reason why the president wants to decrease the interest rate of Turkey, in order to finance construction.
As the Turkish lira constantly loses its value, there are some people who compare Turkey with other countries such as China and Russia. As the Turkish lira constantly loses its value, there are some people who compare Turkey with China. China is the world's superpower of export. On the other hand, Turkey is becoming more dependent to import every year. And, Russia, on the other hand, is rich in natural gas, which Turkey dependency of. Even the electricity in Turkey is made from the imported gas.
As a matter of fact, a decline in Lira's value doesn't help Turkey to fix its problem but cause a bigger problem instead. Turkey's import dependency leads a decline in purchasing power of Turkish people as Turkey's currency loses its value. And, it tends to increase the inflation.
To sum up
A rise in the exchange rate leads to an increase in imported goods' princes which leads a rise in general prices.
Exchange Rate ↑ → Prices of Imported Goods ↑ → General Price ↑
Emel
What is the problem?
Well, we should start with 2008 crisis. Developed countries' central banks' pumped out cashes into emerging markets to pull the world off crisis. This means, a high amount of cash flows into emerging markets. This was a unique opportunity for countries who needed funding, such as Turkey, whose deficit is one of the highest in the world.
As the world recovers, developed countries' central banks decided to stop pumping out cashes, and hike a interest rate instead. As the developed countries hike interest rates, investors start losing their interest to emerging markets, and this time the cash flows from emerging markets to developed countries.
But, they should've known the world wouldn't be in crises forever, right? Well, yes. But Turkey didn't use this funding to increase its productivity but in construction, instead. There are plenty of reasons for this we can count: Construction and mega projects are really important for election. They also create new jobs within these projects. That's why the goverment choosed to finance construction instead of using funding in such sectors that will increase the productivity level. Also, it's the same reason why the president wants to decrease the interest rate of Turkey, in order to finance construction.
As the Turkish lira constantly loses its value, there are some people who compare Turkey with other countries such as China and Russia. As the Turkish lira constantly loses its value, there are some people who compare Turkey with China. China is the world's superpower of export. On the other hand, Turkey is becoming more dependent to import every year. And, Russia, on the other hand, is rich in natural gas, which Turkey dependency of. Even the electricity in Turkey is made from the imported gas.
As a matter of fact, a decline in Lira's value doesn't help Turkey to fix its problem but cause a bigger problem instead. Turkey's import dependency leads a decline in purchasing power of Turkish people as Turkey's currency loses its value. And, it tends to increase the inflation.
To sum up
A rise in the exchange rate leads to an increase in imported goods' princes which leads a rise in general prices.
Exchange Rate ↑ → Prices of Imported Goods ↑ → General Price ↑
Emel
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Turkey's Economic Problems
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