Turkey’s economy reflects deepening divisions between rich and poor

December 21, 2020

December 21, 2020

Selman Güzelyüz

Translated from the Mesopotamia News Agency

The impact of Covid-19 has deepened the economic crisis and the division between rich and poor in Turkey this year. While 1.5 million people were thrust into poverty as a consequence of the growing unemployment rate and the rising cost of living, nearly 100,000 people have become millionaires.

In 2020 Turkey’s economy entered a period of sharp downturn. The economy started to slow down in 2015 and has followed a downward trend since the beginning of 2018.

However, the payments-currency crisis, the household debt crisis, as well as numerous banking crises, all hit hard in 2020. In addition, people in Turkey were subjected to economic hardships as a result of inflation and unemployment.

1.5 million more poor people in Turkey

According to data from the World Bank, 1.5 million people fell to new levels of poverty in Turkey.

The percentage of poor households in Turkey has increased from 10.4% to 14.4%. Twenty-three percent of people in this newly-poor group do not receive any social assistance.

By using the methods of the International Labour Organisation (ILO), the Research Centre of the DİSK Confederation (DİSK-AR) calculated the real job loss and unemployment caused by COVID-19 in Turkey and found that the number of unemployed approached 10 million in September 2020. The number of “hopeless” unemployed has also increased from 630,000 to 1.4 million people in the last year.

During the pandemic, workers suffered due to unpaid leave or forced part-time work, whereas aid packages were issued one after another for companies by the state. This worsened an already difficult situation.

Although the Minister of Treasury and Finance claimed that the support given to citizens during the pandemic exceeded 200 billion lira, 75% of support was in the form of deferring taxes and similar benefits for the biggest companies in Turkey. As part of this support package, there were tax cuts to support airline passenger transportation and tourism, and a reduction in the down payment rate of housing loans. In domestic airline transportation, the VAT rate was reduced from 18% to 1% for three months. The government also offered low-interest loans to stimulate domestic consumption.

According to the Risk Centre data from the Banks Association of Turkey (TBB), the number of individual borrowers in July 2019 was 31.3 million. This number rose to 33.4 million in July 2020. In other words, 2.1 million more people borrowed money over the course of a year.

Similarly, personal loan debts, which were 527 billion TL in July 2019, reached 769.2 billion TL in July 2020. In the last year an increase of more than 200% in the number of consumer loans was recorded. The number of consumers using consumer loans for the first time was 105,000 in July 2019, and increased to 392,000 in July 2020. In the same period, general purpose loan debt to banks increased from 220.9 billion TL to 365.8 billion TL.

97,000 new millionaires

Meanwhile, despite the reality of around 10 million unemployed, rapidly collapsing trade and farmers who are becoming poorer and poorer, the number of people with one million lira or more in their bank account increased by 96,784 in the first 10 months of this year. The total deposits of millionaires exceeded two trillion TL.

According to the Turkey Statistical Institute (TURKSTAT) data, the sector that grew the most in the last three months was the finance sector, with growth of 41%.

Impact of war policies on the economy

It can be observed from the central government’s budget for 2020 that one of the main reasons for the economic crisis in Turkey is the war policy against Kurds, both within and outside the country.

Turkey’s share of the budget devoted to security in 2020 was 249 billion TL, and 98.5 billion TL of this budget is used by companies such as Aselsan, Roketsan, Defence and Air Industry, Turkish Aerospace Industries, Inc. (TAI), and Defence Technologies Engineering and Trade inc. (STM). These companies constitute local examples of the defence industry.

President Erdoğan had to admit the high cost of Turkey’s war policies during a press conference in on 7 August. When the dollar reached a record high Erdoğan made a statement in the face of rising social reactions, saying, “The fight against terrorism is not free of charge. We have serious expenses”.

As a result, the government, which announced support packages one after another to protect the big companies in 2020, tried to overcome the financial crisis by increasing the burden on the poor of society. People borrowed cheap loans. However, with the increased interest rates, citizens were left with consumer loans, the rate of which reached up to 20%.

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