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Turkey's president is criticized for his plan to combat inflation

RACHEL MARTIN, HOST:

Inflation is on the rise here in the U.S., but in some countries like Turkey, the situation is extreme. The new year brought a steep spike in food prices there and a currency crisis that's been going on for months. The Turkish president is taking an unorthodox approach. NPR's Peter Kenyon has been talking with people in Istanbul struggling to cope.

PETER KENYON, BYLINE: Nejdet Sik, who works in a kebab restaurant, says people are under a huge strain. He can feel it every time he rides the bus or the tram.

NEJDET SIK: What can I say anymore? Economics - everyone upset. If you touch someone, they are really like the dog - want to bite you because stress, too much stress, brother, so I hope change.

KENYON: He says he completely understands how they're feeling, watching their standard of living decline before their eyes.

SIK: What they're going to do? They can't buy stuff, they can't give to electric, they can't give to the gas, look after the kids or give the rent. What they are going to do?

KENYON: Many economists will tell you that a big reason for Turkey's inflation problem is President Recep Tayyip Erdogan's unorthodox theory that cutting interest rates will bring prices down, rather than force them even higher, as most economists believe. In a speech to his ruling party members late last year, Erdogan appeared to acknowledge the risk involved in cutting rates. But he declared that in the end, it would pay off for the Turkish lira and the country. Analyst Can Selcuki at Istanbul Economic Research says while he doesn't support Erdogan's policy, he can explain what the Turkish president is trying to do.

CAN SELCUKI: So the two fundamentals of the new model is low interest rates and a depreciated lira, with the aim of boosting exports, construction and tourism, which in return will provide a surplus, which will be used for investments, thereby valuing the Turkish lira and bringing down interest rates.

KENYON: The problem, says Selcuki, is that no economist he knows believes the currency markets will respond the way Erdogan says they will.

SELCUKI: The belief in Erdogan's administration is that interest rates causes inflation, which is against any common wisdom or knowledge of economy that we have.

KENYON: But rather than reverse course, Erdogan has dug in his heels and vowed to continue. At an outdoor tea shop, I meet Bojana, who didn't want to give her last name when being critical of Turkey. She's a 42-year-old freelance filmmaker who moved to Turkey two years ago from Macedonia. She says obviously, this crisis in the Turkish lira works out well for foreigners who get paid in euros or other relatively strong currencies. But she's painfully aware of what it's doing to her Turkish friends.

BOJANA: You can see it everywhere. You can see it in the neighborhoods. You can see that shops are closing. You can see, of course, in the supermarket bills that they are now double, if not triple, what they were. But it is palpable. You can see it.

KENYON: By now, many in Turkey are aware that the lira lost nearly 40% of its value against the dollar last year, and they're wondering what the new year will bring. Peter Kenyon, NPR News, Istanbul. Transcript provided by NPR, Copyright NPR.