The Turkish economy is going through an exceptional period, like the rest of the world in light of the Corona pandemic crisis, as it has been greatly affected by the suspension of the tourism sector, which was generating annual revenues of about $ 40 billion, as well as the losses suffered by the aviation sector, as well as the rest of the tourism facilities.

These economic factors, in addition to political factors that Turkey is going through, cast a negative shadow on the value of the local currency, which contributed to the decrease in its value against foreign currencies over the months of 2020, to lose about 25% of its value, even if the external political factors have the greatest influence on The devaluation of the Turkish local currency.

Low Turkish Lira

The decline in the value of the Turkish currency during the months of 2020, and the negative effects that accompanied it on the monetary and financial conditions, led to the dismissal of the governor of the Central Bank, as well as the Minister of Finance, and to face the problem, the Turkish Central Bank decided to raise the interest rate to 15% on Thursday, 19 November 2020.

Thus, the interest rate on bank loans in Turkey has become the highest among the countries of the region, reaching 15%, after it was around 10.25%, and it is natural for the decisions of local savers and foreign investors to take advantage of this opportunity and deposit their money in banks and local debt instruments for the Turkish government.

On November 15, 2020, the interest rates on Egyptian treasury bills were for a period of 90 days, around 13.1%, and because Turkey raised the interest rate to 15%, it is expected that hot money will change its direction to Turkey during the coming period, to reap the benefits of the difference between the interest rate. In the two countries.

The decision of the Turkish Central Bank to raise the interest rate has led to an increase in the value of the Turkish lira against foreign currencies, to reach 7.59 pounds to the dollar last Thursday, and it is expected that the exchange rate of the lira will witness a state of stability at this rate, or it may continue to rise against foreign currencies, if As long as monetary policy continued to maintain the interest rate as it is at 15%, or headed for a further increase.

The current interest rate is not the highest in the performance of the monetary policy of Turkey, in September 2018, the interest rate reached 24%, which made savers in local currency flee from direct investment markets and accumulate their money at banks.

It is noteworthy that this higher interest rate concerns only deposits in local currency, while interest on deposits in foreign currencies remains low, not exceeding 2.5%.

The policy of raising the interest rate to address the depreciation of the local currency is one of the prominent policies within the framework of the capitalist system, but this does not mean that it is an effective policy, as the monetary policy maker aims to raise the interest rate, for several things, including: To withdraw excess money from the hands of individuals, through Their desire to save at a high interest rate, as well as confronting the phenomenon of dollarization or buying gold, as savers find that banks have a return that exceeds their keeping their savings through foreign currencies or buying gold.

There is no doubt that the stability of the exchange rate is an important requirement for the investment climate in any country, but what is the price that the Turkish economy will pay for using the interest rate to raise the value of the local currency, or the stability of the exchange rate?

There is a set of risks surrounding the policy of the interest rate driving the capabilities of the Turkish economy, especially if we are facing an economy that has strong productive assets, especially in the agricultural and industrial sectors, and even in the service sector, as well as through the tourism and health care sectors, and in the following we deal with these risks.

The Turkish Central Bank's decision to raise the interest rate led to an increase in the value of the Turkish lira against foreign currencies (Reuters)

Falling under the negative influence of the financial and monetary economy

The principle is for the financial and monetary economy to be at the service of the productive economy, but in light of the increase in the interest rate, the natural behavior of individuals and institutions will be to move away from the productive economy, due to the low return from it, and thus the economic policy maker in Turkey will be between the two mouths, either responding to the raising of the price Interest, and limits the launch of the productive economy, or is subject to the wishes of speculators on the local currency.

High unemployment rates

According to the figures announced by the Turkish Statistics Institute, the unemployment rate in August 2020 reached about 13.2%, which is undoubtedly high, and the interest rate hike policy adopted by the Turkish Central Bank recently will raise the cost of investment on the one hand, and on the other hand it will help individuals. On depositing their money in banks, and not investing, which will lead to high unemployment rates.

Difficulty facing inflation

The policy of raising the interest rate will help to withdraw liquidity from the hand of savers, by encouraging them to save in banks, which helps to reduce inflation rates on the demand side, but on the other side, production costs will rise, which will lead to raising the price of goods and services, i.e. Raising the inflation rate from the supply side, because producers rely heavily on bank financing, especially in a capitalist economy like Turkey.

Overburdening the public budget

On November 13, 2020, the Turkish government debt amounted to about $ 137.9 billion, local creditors control the majority of this debt, with a large rate of 95%, as foreign money left the Turkish public debt in 2019 after the interest rate fell to less than 9%. .

In light of the Turkish Central Bank’s decision to raise the interest rate to 15%, this will cost the state’s budget with greater burdens of the debt owed on it, and the increase in the budget’s debt burden in 2021 will be a deduction from spending on vital sectors related to education, health and other important sectors.

On November 13, 2020, the Turkish government debt reached about $ 137.9 billion (Reuters)

The performance of the stock exchange fluctuated

The natural behavior after raising the interest rate in the Turkish banking system is that there is a state of escaping from the stock exchange and heading to banks to obtain a better return, and the Turkish stock exchange in 2019 witnessed a great improvement in light of the low interest rate, because savers found their way in the stock exchange to get a return Better than saving in banks.

Thus, money remains in a state of economically ineffective transfer between banks and the stock exchange, without achieving any real economic addition. This transfer did not lead to adding job opportunities, nor the existence of new goods and services, nor did it add to the domestic product a balance that strengthens its position.

Hot money pressures

In capitalist economies, foreign investments are resorted to in public debt, in order to increase the supply of foreign exchange, which these investments bring, and these investments are called hot money.

Hot money is one of the worst monetary tools that negatively affect the performance of any economy, that hot money, which comes in order to obtain the largest return in the least possible period of time, and is not concerned with economic stability or development, and it is expected that hot money will return again to Turkey, To take advantage of the higher interest rate in the region, but it will come out as soon as possible if a higher interest rate emerges from Turkey, as it did in 2019.

In conclusion, we can say that the world is suffering in light of the usury economics, which are based on the mechanism of debt and trade in it, while the reality is between the efficacy and validity of the participation mechanism, which makes capital a stabilizing factor, for its acceptance of the principle of profit and loss, not the interest rate.

The most prominent lesson of the global financial crisis in 2008 was the mistake of continuing to work according to the interest rate mechanism. However, moneylenders and debt dealers still have control over the destiny of things.