Turkey’s Economic Crisis: A Look into Istanbul’s Grand Bazaar, Where Traders Haggle Over Dollars and Gold
Nestled in a dimly lit alleyway within Istanbul’s bustling Grand Bazaar, a vibrant crowd of men congregate. They shout, wave their arms, and frantically speak into their phones while others nervously pace back and forth. This bustling “standing market” is the preferred venue for Istanbul’s traders to engage in frenzied transactions involving precious metals and currencies, primarily dollars and gold.
Turkish Lira Loses Value: Traders Seek Refuge in Dollars and Gold
Adnan Kapukaya, a seasoned trader and market expert, explains the current predicament: “Our currency is almost worthless. People haven’t seen inflation decrease, so they no longer trust the Turkish lira.”
Inflation Remains Sky-High: Central Bank Hikes Interest Rates to 45%
Despite the Turkish central bank increasing interest rates to an astounding 45%, up from a modest 8.5% the previous year, inflation remains stubbornly high. Unofficial estimates suggest prices have risen by over 100% last month compared to February 2023.
People Turn to Gold Markets for Savings Protection
Omer Tozduman, a gold dealer, shares insights into the situation: “In previous years, people bought real estate or land. But with interest rates soaring high, they either deposit their money in the bank for a high return or purchase gold.”
Gold Markets Thrive: Demand Outstrips Supply
The gold markets in and around the Grand Bazaar are thriving due to the high demand. In some areas, it seems a gold seller is present on almost every block. Many advertise “no commission,” making it an attractive option for those seeking to convert their dollars into gold.
Credit Card Debt: Struggling to Keep Up
Ahmet Basaran Kolay, the proprietor of an exchange office outside the Grand Bazaar gates, explains that people only buy lira when necessary. “People who purchase lira do so because they must spend it, but generally, individuals wish to acquire dollars to invest and safeguard their savings.”
Melek Alkes: The Struggling Preschool Teacher
Melek Alkes, a preschool teacher, laughs when asked about her currency preferences. “I can’t save anything,” she admitted. With modest wage increases failing to keep pace with inflation, she is now seeking another job to manage her credit card payments.
Erhan Yeygul: The Soccer Player and Office Worker
Erhan Yeygul, an amateur soccer player and office worker, shares his family’s predicament. “You can say ‘you are young, you can work,’ but I do work, and I still cannot make a living, and I have two jobs,” he said. His young family is struggling to pay for essentials using their credit cards.
Kerim Rota: Sustainability of Credit Card Reliance
Independent economist Kerim Rota suggests the reliance on credit cards is unsustainable. “The central bank increased credit card rates last week, which now stands at 5% monthly (equivalent to 80% annually). Nobody can afford that.”
Upcoming Local Elections: Bitter Pills Ahead?
Local elections are set to take place on March 31, followed by some challenging measures. Economist Kerim Rota believes the government’s recent decision to double the minimum wage could worsen inflation.
A Long Road to Recovery: Six Months and New Central Bank Governor
Isil Sariyuce in Istanbul contributed to this article. Economist Isil Sariyuce anticipates a long recovery for Turkey, suggesting it will take another six months before Turks regain confidence in the lira and for recent dramatic interest rate hikes to begin reducing inflation. New central bank governor Fatih Karahan was brought in last month after his predecessor’s sudden resignation.
Turkey’s Stock Market: A Bright Spot Amidst Economic Turmoil
Despite the economic uncertainties, Turkey’s stock market has been a rare success story. The BIST-100 index has risen by 19.8% in 2024, second only to Japan’s Nikkei 225. Jacob Grapengiesser, CEO of East Capital, attributes these gains to local retail investors seeking to protect the value of their cash in an inflation-ridden environment.
Investor Confidence: Sticking with Turkey
Jonas Goltermann, Deputy Chief Markets Economist at Capital Economics, believes about half of the BIST-100’s recent gains can be attributed to the lira’s depreciation. Inflation boosts Turkish companies’ domestic revenues, while a weaker currency increases exporters’ earnings in lira terms.
Despite the challenges, investors remain optimistic about Turkey’s future. With a young population, ties to Europe’s economy, and exposure to fast-growing Middle Eastern economies, Turkey presents an enticing investment story.
