They put the country in a vicious circle

Melisa AY

Mehmet Şimşek , who was appointed Minister of Treasury and Finance in June 2023, immediately following the previous general elections, has now served 25 months. During his two-year tenure, Şimşek has seen his appointment spiral out of control. Şimşek, who was practically heralded by AKP President Recep Tayyip Erdoğan before the 2023 general elections, has found himself caught in a vicious cycle in his mission to save the economy.

Official inflation, which stood at 38.21 percent annually in June 2023, the year Şimşek took office, has since returned to the same level over the past two years. Last month, annual inflation was announced as 35.05 percent. Şimşek's IMF program, implemented without the IMF, following the signals, has returned to its starting point in a vicious cycle. Those who earn their living were left struggling to breathe, production fell into crisis, the economy contracted, and plans to curb high inflation failed. With all indicators deteriorating, the "disinflation run" returned to its beginning.

Minister Şimşek's two-year program painted a rosy picture. Seeking to combat inflation by stepping on the citizens, the Şimşek administration has instead relegated to the citizens the "panhandle" Erdoğan had handed over to them. Şimşek, who took on the task of repairing the economy ravaged by the one-man regime, was described as "the name favored by the financial community," creating the illusion that he would instill confidence in investors. Almost the only outcome of the program was to further impoverish citizens whose pockets were empty and whose purchasing power had plummeted.

Şimşek, who began by raising the policy interest rate from 8.5 percent upon taking office, also appointed Hafize Gaye Erkan to head the Central Bank. Erkan, plagued by constant crises since taking office, had a shorter-than-expected tenure. Şimşek, who also failed to achieve a stable outlook, maintained that the economy was operating holistically, but local elections restricted the minister's leeway.

During the lightning-fast period, neither inflation improved nor growth improved, nor was the production crisis resolved. On the contrary, the debt crisis erupted, unemployment soared, and businesses shuttered one after another.

While the deterioration in all indicators deepened, Minister Şimşek, who had been shy during the crisis, clung to the rhetoric of moderation in the economy.

While poor citizens were forced to use debt as a means of subsistence, the cost of debt soared with high interest rates. The monetary policy, which aimed to escape the effects of the one-man economic rationality and the Nas policy of the pre-Şimşek era, has practically stalled. Şimşek, who was expected to lower the policy rate this year in pursuit of balance, has been stalled by Erdoğan, who is willing to risk every trick to maintain his power. After the March 19 Palace Coup against Ekrem İmamoğlu, whom the regime viewed as the greatest threat to its power, the economic administration chose to postpone interest rate decisions. Inflation, which rivals any other country in the world, has remained at high levels. With headline inflation among OECD countries and unrivaled energy and food price increases, Turkey has become a country driven into poverty by high prices and low wages.

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CREATED 3.5 MILLION UNEMPLOYMENT

Unemployment, one of the country's most significant problems, persists. The government's efforts to reduce unemployment on paper are refuted by calculations of actual data. The Lightning Program, which first blamed the inherited economic wreckage on the people, caused the army of the unemployed to grow daily. During Lightning's tenure, the army of the unemployed reached record highs. Unemployment rivaling pandemic levels was seen during this period. The Lightning effect manifested itself in the inactive workforce, which TÜİK (Turkish Statistical Institute) excluded from the unemployed according to its narrowly defined unemployment data. In June 2023, when Minister Şimşek took office, the official narrowly defined unemployment rate was 9.6 percent. In the same month, the actual number of unemployed was 9.2 million, while the broadly defined unemployment rate was calculated at 24.2 percent. Updated May unemployment figures show narrowly defined unemployment at 8.4 percent, but actual unemployment has skyrocketed. The number of unemployed in the country has reached 12,606,000. The broadly defined unemployment rate rose by 6.8 percentage points from the beginning of the Lightning era to 31 percent. Nearly 3.5 million people have joined the ranks of the unemployed in the past two years.

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BUSINESSES ARE IN BANKRUPT

Businesses were left vulnerable to the economic crisis, left to their fate. Businesses of all sizes, large and small, stumbled under the financial crisis. Bankruptcies and bankruptcy filings increased during the Şimşek era. High interest rates, coupled with rising financing costs, left businesses struggling to survive the crisis with heavy debt. Bankruptcies rose in every sector, from textiles to construction. In the first six months of this year alone, 2,776 companies filed for bankruptcy. Bankruptcies, bankruptcies, and moratoriums, which numbered 1,516 in 2023, rose to 3,497 in 2024. Applications approached the previous year's total in the first six months of this year. The bankruptcy crisis is expected to continue for businesses struggling to survive the contracting economy. Bankruptcy proceedings also create a loss of rights for workers. Workers in these businesses become creditors owed money by the company that filed for bankruptcy. For workers whose wages are unpaid and whose businesses' survival is at risk, unemployment becomes inevitable. As businesses gradually drifted toward bankruptcy, the debt crisis led to a surge in bad checks and protested bills. According to the Banks Association of Turkey Risk Center, 147,000 checks totaling 57 billion Turkish Lira bounced in 2023. In the first five months of this year alone, the number of bad checks has doubled that of 2023. In those five months, 108,161 checks totaling 81.8 billion Turkish Lira bounced.

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MUSTAFA SÖNMEZ: TO UNDERSTAND, WE HAVE TO LOOK AT THE PALACE

When Mehmet Şimşek arrived, he inherited a "wreck." Şimşek inherited what he called an "irrational" economy from those who had fueled inflation to win the 2023 General Elections. First, he lifted the pressure on suppressed foreign exchange, which led to a sharp price increase. Claiming to have initiated a disinflationary process, he raised interest rates, which had fallen to 8.5 percent. The high exchange rate and interest rates also created numerous anomalies. With the 2024 Local Elections intervening, Şimşek was unable to fully implement the austerity measures he envisioned. Following the election, he stepped up his game and accelerated the program. However, the March 19 coup attempt watered down the program he had envisioned.

When evaluating Mehmet Şimşek, it's crucial to consider the political landscape. Şimşek, along with the Central Bank, are completely dependent on the Palace. The Palace's rush for power is a burden. Şimşek and his team can't just wait until March 19th and tell Erdoğan, "We've capsized." Şimşek's performance is never independent of the Palace, and it will continue to be so. Erdoğan doesn't care about anything other than his power—the economy, plans, and programs. While the Palace, in its rush for power, pushes every button, Şimşek finds himself facing various obstacles. Neither inflation nor growth have produced any success stories in the past two years. The situation they portrayed regarding narrowly defined unemployment is not the same in unemployment. He didn't inspire confidence in foreigners, and foreigners fled during the political turbulence. Erdoğan's regime influenced his performance. The climate of austerity he sought to implement didn't work against him. His performance is so dependent that he might as well blame Erdoğan's influence for his failures.

The real issue is Erdoğan can't accept losing power. He's brought the economy to a state of unimaginable ruin. The March 19 coup also hit Şimşek. Of course, since the Financial Crimes Investigation Board (MASAK) reports directly to him, he was aware of the operation. This is what the regime's power is all about; it changes the rules of the game. Therefore, two years of the Palace's rule shaped two years of Şimşek's. Şimşek, who implemented an IMF program without the IMF, also linked inflation to demand. All he could do was suppress labor. He raised the minimum wage by 30 percent while inflation was at 45 percent. Labor incomes declined in real terms for two consecutive years. The burden of the program fell on the working class. Despite making citizens pay the price, he still couldn't create a success story.

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ŞİMŞEK'S INFLATION EXHIBITION RETURNED TO THE TOP

The disinflationary odyssey proved to be the biggest test of Minister Şimşek's tenure. Official inflation, which stood at 38.21 percent when he took office, closed 2023 at 64.77 percent. In 2024, inflation returned to its 2022 levels and reached 75.45 percent in May of last year. As inflation remained high, Şimşek repeatedly declared, "It will decrease, it will improve, the program is working." The rate of change in an index used to calculate price increases did not fall as predicted. Inflation, calculated to be quite high at 75 percent, continued to run high at around 35 percent. Citizens, whose purchasing power was eroded by inflation, clung to debt, and the crisis deepened during Şimşek's tenure. When he began his ministry, the amount of non-performing debt on consumer loans and individual credit cards, which stood at 33.7 billion TL, skyrocketed. During the week of June 27th to July 4th, individual loan and credit card debts increased by 38.7 billion lira, reaching a total of 4.826 trillion lira. Non-performing loans also reached 179.3 billion lira this month, a more than five-fold increase compared to June 2023. Inflation rose, wages were suppressed, and purchasing power eroded. The crisis affected not only citizens but also production. Agricultural products were left to rot in the fields. The wheels of industrial production ground to a halt. The economy, unable to produce, stagnated, entering recession. Gross domestic product (GDP) had grown by 5.9 percent in the third quarter of 2023, the first quarter after Şimşek took office. Economic growth was 2.0 percent in the first quarter of this year.

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They equalized in poverty

The minimum wage, which last saw a mid-year increase in 2023, has fallen virtually to zero. This year, the minimum wage, which did not receive a July increase, has fallen below the hunger threshold. According to the United Metal-Workers' Union Research Center (BİSAM) Hunger and Poverty Line Report, the monthly expenditure required for a family of four to maintain a healthy, balanced, and adequate diet is calculated as 23,615 TL. When all basic needs are taken into account, the poverty line has risen to 81,686 TL. According to the report, the decline in purchasing power has affected not only families but also those living alone. According to BİSAM's data, a person living alone needs at least 37,912 TL per month to meet their healthy nutrition, shelter, and other basic needs. This amount is 15,808 TL higher than the minimum wage.

According to the report, the highest cost per day was fruits and vegetables, at 211.71 lira. The second-highest cost was milk and dairy products, at 210.71 lira. The minimum required spending for meat, chicken, and fish was 161.64 lira.

Türk-İş's hunger threshold for May was 25,092 TL, and the poverty line was 81,734 TL. When Şimşek took office, the poverty line was 38,000 TL. The minimum wage, which has been kept at a miserable level, barely covers 25.99% of the poverty line. As a result of Şimşek's policy of suppressing labor income, the lowest pension, set at 16,881 TL, covers only one-fifth of the poverty line. Citizens can only afford a healthy and balanced diet for 20-25 days a month, provided they don't spend on any other items.