Turkish business groups criticise austerity measures

• Government hurting economy, group says
• ‘Structural solutions’ needed
• Exporters call for ‘common sense’

Turkey’s tight monetary policies are coming under fire from some of the country’s leading business groups, which say measures to bring down inflation are destroying domestic industry. 

Burhan Özdemir, head of the independent industrialists and businesspeople’s association (MÜSİAD), told local media this week that the central bank’s disinflation campaign combining currency controls, high interest rates and restrictions on lending are insufficient to reduce prices further and are harming the economy.

“If you cannot bring down rent and food prices, there is little you can achieve. We need structural solutions,” Özdemir said. 

He said the ministries of treasury and finance, agriculture and trade need to work together to develop solutions to persistent inflation and the high cost of credit. Otherwise Turkey risked losing its industrial base, Özdemir warned. 

Özdemir’s comments are significant because MÜSİAD is seen as closely aligned with the Erdoğan administration. 

Inflation has fallen from a peak of 75 percent in May 2024, spurred by lax monetary policy in the run-up to elections, to 31 percent in January.

The central bank has cut its main policy rate from 50 percent as of March 2024 to the present level of 37 percent. However, the slow-but-steady approach has put pressure on many sectors and on the general public, which is having to deal with the high cost of living. 

The government’s monetary team, led by central bank governor Fatih Karahan and finance minister Mehmet Şimşek, is also overseeing a managed easing of the lira. The currency is trading at just under 44 to the dollar, down from 40 lira to the dollar six months ago. 

Nonetheless, many feel this is overvalued. The high level of the local currency has added to the woes of exporters facing increased competition from Asia, although it has eased dollarisation.

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Many of the concerns raised by the MÜSİAD head have also been echoed by Mustafa Gültepe, president of the Turkish Exporters Assembly.

Rising production and input costs that have not been offset by a weaker lira mean Turkey is trying to export its inflation but “there are no buyers”, he said. Support for industry is needed.

“We need to implement production-based policies more quickly, based on common sense,” Gültepe said.

Ayhan Zeytinoğlu, head of the Kocaeli Chamber of Industry, also called for a combined approach to combat inflation. 

“From an industrialist’s point of view, it is crystal clear that the controlled foreign-exchange policy has not yielded results in bringing down inflation, meaning we have to do other things. This is not working,” he told AGBI.

“Comprehensive policies are needed.”