As an International Business/Finance major, I was intrigued that the October 5th, 2021, G20 summit took place in Sorrento, walking distance from Sant ’Anna Institute where I was studying abroad. This year the G20 leaders focused on three broad but connected pillars: “People, Planet, & Prosperity”. As a young adult that is passionate about how business can do a better job helping people and the planet, I found the location and agenda a bonus to my study program.
There was no true ending to my international learning curve. My flight back home provided one more reminder of the power of finance and the consequences of ill-timed economic policy. My flight home required a layover in Turkey, which happened to be on the same day that Turkey’s currency crashed to a new all-time low against the dollar. Turkey’s central bank lowered interest rates again that day, despite surging consumer prices, a move in line with President Recep Tayyip Erdogan’s unconventional economic wisdom. President Erdogan has led Turkey for almost 18 years, and the country was considered a miracle during the first decade. However, when political tensions caused Turkey’s Lira to topple in 2018, Erdogan began to push the state banks to offer cheap loans to households and businesses. When the chief of the central bank resisted pressure to lower rates in 2019, Mr. Erdogan fired him, the beginning of a pattern. Turkey has yet to contain inflationary rates of 20 percent and interest rates of 15 percent.
The Lira has lost more than 45 percent of its value over the past year. Unemployment, high living costs, price increases, and bills are breaking the backs of people. The currency crisis has harmed a supply chain that stretches from the town’s jagged hillsides to Nutella jars on global supermarket shelves.
In doing some reading on the currency collapse I was surprised to find out the Turkish hazelnut industry employs some four million people who produce 70% of the world’s hazelnuts. It has become so costly to buy imported products such as fertilizer and seeds that some farmers have shut down production of hazelnuts. Nutella-maker Ferrero buys around one-third of Turkey’s hazelnut exports. Here we have an example of how poor economic decisions across the globe can impact grocery prices in our hometown. By no means do I want to underplay the significance of the inflationary burdens Turkey and its citizens are dealing with, but rather highlight the global connectivity and consequences of coordinated vs. uncoordinated economic thinking.
Back home in the United States, with the inflation rate at 7%, the Federal Reserve is expected to begin hiking rates in 2022. Coming off a pandemic situation for the past two years, let’s hope that business and consumer spending remains high and supports a rising stock market.
Author: Caroline McManus