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Abu Dhabi, UAEThursday 13 December 2018

'Things are not going in a good direction' 

As Turkey's currency crisis takes hold, ordinary citizens are changing their habits, reports Kareem Shaheen

A currency exchange shop in Istanbul, on August 14, 2018, as the lira struggles against the dollar. AP Photo
A currency exchange shop in Istanbul, on August 14, 2018, as the lira struggles against the dollar. AP Photo

At a barbershop on the European side of Istanbul, a week before Eid is usually busy with customers.

Men are anxious to look their best, whether it is a full cut or a beard trim, before heading to their hometowns for the holiday. But not this year.

"The dollar reached seven liras and people are spending less now," said the hairdresser, who declined to give his name.

His assistant laughed, then added: "They're saying it's fashionable to have a beard, so they're going weeks without a shave, but they just don't want to spend any money."

For ordinary citizens and traders this is one example of the impact of a currency crisis that has driven the Turkish lira to historic lows against the dollar over the past week.

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Read more on Turkey crisis:

Turkish president says nation will boycott US electronics

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Systemic monetary problems such as high external debt and a current account deficit boiled over when the United States, a NATO ally, imposed sanctions on Ankara over the continued detention of Andrew Brunson, an American pastor accused of espionage on behalf of terrorist groups.

The crisis has shown little sign of abating – John Bolton, President Donald Trump’s national security adviser, said a resolution was conditioned on Mr Brunson’s release.

President Recep Tayyip Erdogan has positioned his country as one that is under attack by external forces bent on making the Turkish people bow, a message that has been amplified by a pliant news media largely controlled by his allies or riven by fear of deviating from the government's line.

Some businesses have responded to Mr Erdogan's call for citizens to rally around the flag, with images circulating on social media that show shops offering to give away coffee or vegetables in exchange for a receipt showing US$100 converted into lira, and the occasional dollar burning filmed, including by a member of the ruling Justice and Development party.

But while the crisis has many geopolitical facets, and involves tit-for-tat sanctions by two Nato allies, ordinary Turks are the ones likely to bear the brunt for the frayed tempers of their leaders.

Prices for basic goods imported from abroad are rising, most importantly food and other raw materials purchased with hard currency. This is due to the collapse of the lira against a strong dollar as well as inflation, which is higher than 15 per cent. Businesses that rely on imported fabrics or other material from abroad could go bankrupt, as well as those that borrow in dollars but make their money in liras. Or, instead of shutting down, they might have to let employees go.

The costs will affect Turkish citizens, who, according to the government's Statistical Institute survey, spend about 20 per cent of their income on food and non-alcoholic drinks. Before elections in June, the government allowed larger imports of potatoes and onions amid skyrocketing prices caused by inflation.

In the same month, the prices of basic goods such as dairy products also rose sharply due to a weakening currency and inflation rate.

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Turks who earn salaries in liras will also find themselves locked out from industries that are likely to seek income from clients with hard currency.

For example, hoteliers are likely to benefit if tourists and foreigners decide to come to Turkey on holiday because of the weak currency that makes it cheaper for them to visit. But to keep up with rising supply costs, hotels over the past few days have raised prices for their rooms by double, in some cases, pricing ordinary workers out.

"I don't know what our suppliers will do, but the tourists will bring hard currency, and we will survive," said one hotel manager.

As the currency loses value, those who want to travel abroad will find it more difficult to do so unless they have a bigger financial cushion. Those who have retirement savings in liras will see limited return on them in the midst of the crisis, particularly if it endures.

Over the weekend, Arab and foreign tourists flush with liras queued outside luxury shops in the city including Louis Vuitton, calculating that they could buy those high-end products for cheaper than they would amid the currency crash. But there were few Turks in those queues.

"A kilo of figs is now too expensive, how will we buy it?” said the hairdresser. "Things are not going in a good direction."