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Erdogan’s new economic plan no remedy for lost purchasing power

Even as Ankara rolls out a new scheme to contain the country’s currency crisis, the severe losses of millions of low-and middle-income Turks appears irreversible.
OZAN KOSE/AFP via Getty Images

Turkish President Recep Tayyip Erdogan’s emergency plan to prop up the battered Turkish lira and stop creeping dollarization has reversed the currency’s free fall for now, but the package of new measures offers no remedy to the loss of purchasing power plaguing Turkey’s wage-earners — from unskilled workers to white-collar professionals — amid soaring inflation.

The new plan, announced Dec. 20 shortly after the lira sank to an all-time low, aims to encourage retail lira deposits by offering a state guarantee to pay the differential should the lira’s decline against hard currencies exceed banks’ interest rates.

For Turkey’s import-reliant economy, the nosedive of the lira coupled with the economic fallout of the COVID-19 pandemic has meant surging costs and thus sharp price increases. Unprecedented sights such as kilometer-long queues for subsidized bread, cooking oil sold by the cup and groceries installing anti-theft devices on baby formula, cheese and even toothpaste speak of how purchasing power has melted, sending millions of low-income people into deeper poverty. The currency turmoil, which sharply worsened in September as the Central Bank embarked on controversial rate cuts at Erdogan’s behest, has had a staggering impact on the middle class as well, stoking an already alarming brain drain.

Aylin Ates, a 51-year-old scholar of business administration at Ankara University, says her salary of up to 9,000 liras ($716) is now barely enough for her monthly expenses. “I’m fluent in two foreign languages. I graduated from good schools in Turkey and did academic research abroad. I have had articles published in prominent, peer-reviewed journals and co-authored books published internationally,” she told Al-Monitor. “But if you ask me what’s on my mind today, I would tell you it’s the money left in my pocket by the end of the month. I’ve been overdrafting my bank account to get by.” Ates had to abandon plans to replace her 15-year-old car. “I’m struggling to meet my basic needs now,” she said.

Onur Alp Yilmaz, a faculty member of the humanities and social sciences department of Istanbul’s Isik University, said he had to cancel a presentation at a prestigious conference at the University of Oxford because travel expenses became unaffordable to him amid the lira’s nosedive in December. “Let alone attending a conference, my salary is barely enough to cover my credit card bill,” the 30-year-old said.

Other academics interviewed by Al-Monitor grumbled about being unable to afford international publications of critical importance in their fields or struggling to produce academic work under the pressure of daily livelihood woes. 

Last week, Erdogan announced a 50% hike on the minimum wage for next year — a striking illustration of how the purchasing power of millions has eroded. While the minimum wage was worth $380 in the beginning of the year, it amounted to about $340 on Dec. 22 despite the significant hike and the lira’s gains since Dec. 20. 

The currency had dropped more than 8% to an all-time low of 18.4 versus the dollar Dec. 20. Erdogan’s evening announcement of the new scheme sent the lira into a massive rally to the region of 13 to the greenback. 

In the crucial health sector, employees remain disgruntled with their pay, even more so due to the extraordinary workload they have endured during the pandemic. The government has announced pay rises of 2,500 to 5,000 liras ($200-400) for doctors, who say the actual increase would be a small fraction of the announced sums due to taxes and other cuts. The average doctor’s salary was about 10,000 liras in early December, according to a health workers’ trade union, yet many physicians and other health workers earn much less. Harsh working conditions and growing violence against doctors in hospitals have only added to their grievances, forcing many to emigrate, mostly to Germany, or move to private practice. 

Ozer Ural Cakici, a urologist who recently left for private practice in Ankara, remains pessimistic about his future. “In the past, doctors would be seen as upper middle class in Turkey, but now the most luxury purchase I can afford is not a car or a home but the MacBook Air I bought in September. I was able to buy this computer on installment three months ago, but if I had to buy it today, that would have been impossible,” he told Al-Monitor. Cakici has come to contemplate a move abroad even though he and his wife, also a health worker, had dismissed the idea previously, worried about the daily care of their two young children. “We managed to afford a one-week holiday last summer, but such a holiday appears impossible for us now. I’m not eager to go [abroad] at all, but I’ve begun thinking about it,” he said.

Prominent Turkish economist Veysel Ulusoy warned that the waning purchasing power of the middle class would be detrimental for the entire economy. “As people in Turkey have come to pity each other, white-collar professionals and public servants beyond the minimum-wage group are deferring their grievances. These people are crucial for the country’s progress and the erosion of their purchasing power would lead to declines in production and productivity,” Ulusoy told Al-Monitor. The desire to move abroad is on the rise among not only doctors and other professionals, but also university freshmen, he added. 

Ulusoy heads the Inflation Research Group, a team of independent researchers that produces an alternative measurement of inflation amid growing popular mistrust in Ankara’s official data. Many companies, he said, recognize how declining purchasing power affects the productivity of their employees and some seek out his team's data to offer better pay. The group’s survey puts annual inflation at 58.6%, more than double the official 21.3%.

Over half of Turkey’s wage-earners are paid the minimum wage. In the construction sector, for instance, 53% of employees earn the minimum wage or less, according to a Central Bank report. And among those with higher salaries, an overwhelming majority of nearly 80%, including white-collar professionals in various sectors, earn just up to 1,500 liras ($120) more than the minimum wage. The salaries of teachers, for instance, range from 4,000 to 5,500 liras ($320-440). Under an existing inflation-adjustment scheme for public servants, a teacher earning 4,500 liras ($360), for example, will see their salary rise 12% to 5,040 liras ($402) in January. The price increases on the market, however, are a different story. The prices of dairy products, for instance, have jumped by up to 60% in the past two months alone, and bread prices have doubled in many cities. As for gasoline, the price has risen more than 60% since January. 

Similarly, rent prices have soared across the country, more than doubling in the central areas of big cities. Treasury and Finance Minister Nureddin Nebati may claim that the average rent in urban centers is 1,261 liras ($100), but according to real estate agencies and rental listings, that sum is the going rate for a private room. In Istanbul, the rents of two-bedroom apartments start at 4,000 liras ($320) in downtown neighborhoods such as Kadikoy and Bakirkoy and average 3,000 liras ($240) in Sultanbeyli, a working-class district an hour’s drive away from the heart of the city.

Low salaries consumed by basic needs augur ill for the economic growth that Erdogan hopes to stimulate in a bid to boost his sagging popularity ahead of elections in 2023 or possibly early polls next year. Noting that consumption accounts for 60% of Turkey’s gross domestic product, Ulusoy warned, “If you suppress salaries, consumption will decline, resulting in severe consequences for the economy. The tension around salaries and purchasing power keeps both employees and employers on edge and means a threat to the entire economy.”

The government’s new scheme may have reversed the slump of the lira for now, but even so, the currency is still down some 40% against the dollar this year. Inflation is certainly higher than the official figure and likely to rise further. Even if lira deposits are shielded against currency swings, the lost purchasing power of millions is not retrievable.

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