Erdogan and his economic agenda in the "palace speech"

After counting the majority of the boxes and before the official announcement of the results of the second round of the Turkish presidential elections, world leaders raced to congratulate Turkish President Recep Tayyip Erdogan on his re-election for a new presidential term, after it became clear to everyone that the matter had been decided in his favor.

Unlike Arab and Islamic countries, he was one of the first to congratulate the leaders of major countries that share strong economic relations with Turkey, even if political tension prevails over relations with each other. Among those who congratulated were Russia, Turkey's top trading partner last year, Ukraine, for which Ankara played a role of great importance and for the world's food security by leading the mediation of the agreement on the safe export of grain from its ports, Germany (second trading partner last year), the United States (fifth partner), France (sixth partner), Britain (seventh partner), other European countries such as the Netherlands and Serbia, and European Union officials.

The attention received by these elections reveals the importance of Turkey's global presence, both politically and economically, and the integrity and transparency that characterized the voting process and silenced the lurking votes, leaving only an opportunity to welcome and praise.

In the "victory speech" delivered this time from the balcony of his palace, the man sent internal and external messages, focusing on his external positions on Turkey's clear biases and principled positions in which it is keen on independence in decision-making, and its pride in its values (stemming from Islam) no matter how much pressure increases globally.

As for the messages he addressed to Turkish society, the most prominent of them were those addressed to those who did not vote for him, declaring that this is a time for unity and solidarity, and that he will work to achieve their interests and preserve their freedoms for all.

Before the recent crisis, Turkey's inflation rate remained single digit over Erdogan's 12 years of rule – with few exceptions – and sometimes fell to a record 4 percent.

Economic Messages and the Battle for Inflation

In addition to this message of solidarity, his speech carried many messages related in one way or another to the economy, including his promises regarding the "voluntary return" projects for Syrian refugees, which were the focus of a heated debate in the elections, and his reassurance to the victims of the earthquake that struck 11 states about his commitment to rebuild their homes and economic and service facilities within a year, and then his message to the general public, especially young people, regarding the file of "economic inflation", which was the biggest concern during the past years.

On the latter issue, which played a prominent role in the decline in the vote, Erdogan reminded (citizens) of his old impressive success on which he built his 20-year career in power, saying that just as he had previously succeeded in reducing inflation to 6% when he was prime minister, he would reduce it again.

The younger generations, angry and demanding change by nature, do not understand what it was like when President Erdoğan came to power: inflation was 73 percent in January 2002, and less than two years later he reduced that rate to below 9 percent in June 2004.

Inflation has remained single-digit for 12 years, with few exceptions, and has sometimes fallen to a record 4% in March 2011, but as of February 2017 it returned to double digits but under the 13% ceiling, then exceeded the 20% barrier in the second half of 2018 and returned to normal levels in 2019 and 2020.

The major jumps in inflation began with the last month of 2021 and continued to rise to 85.5% last October, and then gradually declined to 43.7% last April, which remains high, despite the increase in wages and pensions.

The inflation rate has been linked to the chronic trade deficit in the Turkish economy since 1947, as a percentage of this inflation is due to imports from abroad, especially when the prices of fuel, grains, raw materials and investment goods rise globally. Last year, for example, Turkey imported energy (oil, coal and natural gas) worth $31.7 billion, transportation machinery and equipment worth $78 billion, manufactured goods worth $49 billion, miscellaneous manufactures worth $15 billion, and raw materials (other than fuel) worth about $26 billion.

But the recent decline in energy prices such as oil, natural gas and coal, along with the oil and natural gas discoveries announced this year, will reduce the energy import bill.

The younger generations, angry and demanding change by nature, do not realize what it was like when President Erdogan came to power, with the inflation rate at 73%.

Interest rate cut

Erdogan also reminded citizens in his speech of his previous success in cutting interest rates to 4.5% when he was prime minister, expressing confidence in his own approach that violated international economic norms, which usually resort to raising interest rates as a way to counter inflation by absorbing liquidity from the market to reduce consumer demand. In contrast to this trend, Erdogan has in recent years cut interest rates despite high inflation, increasing his criticism from international financial institutions and making him a target for the opposition at home.

But many do not know that Turkey had already tried the approach of raising interest rates to confront inflation until recently and this did not result in success, as its rate in May 2020 was 8.25%, and increased to 17% at the end of the year, then increased to 19% in March 2021, and since then President Erdogan has reduced it again to 8.5%.

Erdogan's logic in this approach is based on the fact that companies borrow at high interest rates pushes them to increase the prices of their products, thus contributing to the continued high rate of inflation, while low interest rates encourage them to borrow, increasing production and investment, and increasing the supply of goods and services, which contributes to reducing inflation.

Production at competitive prices leads to an increase in exports, reducing the trade balance deficit, and increasing the chances of achieving a surplus in the current account balance in the future, especially with increased revenues from tourism, services and remittances from Turks working abroad.

In order to achieve the ambitious goal of a current account surplus, Erdogan announced in his palace speech his agreement with the Russian president to transform the Thrace region, which borders European neighbors, into a Russian energy distribution center, a step that would increase Turkish trade revenues, while continuing interest in natural gas and oil discoveries, initiatives to support the transition to a productive economy and continued interest in agricultural, tourism and hospital investments.