Quadrillions Spent: Erdogan's Fuzzy Math on Campaign Trail

(Bloomberg) -- President Recep Tayyip Erdogan doesn’t think his generosity toward the Turkish people can be measured in today’s lira alone.

As the Turkish leader hit the campaign trail ahead of municipal elections next month, he touted some eye-watering amounts invested around the country by successive governments run by his AK Party in the past 16 years: 35 quadrillion liras plowed into the province of Gaziantep, 40 quadrillion liras for Antalya and 23.5 quadrillion liras in the Erzurum region.

The largess isn’t exactly a wild exaggeration -- except the numbers are given in old lira, conveniently ignoring a decision made under Erdogan’s watch in 2005 to knock six zeros off the currency. The spending on Antalya, one of Turkey’s 10 largest cities, amounts to 40 billion in the re-denominated lira, or just under $8 billion. (One quadrillion is 1 followed by 15 zeros.)

“If the figures were uttered in the correct way, they would seem low,” said Emin Karagozoglu, an economist at Bilkent University in Ankara.

For all the showmanship, modern Turkey’s longest-serving ruler has indeed pumped plenty of fiscal stimulus into the Middle East’s biggest economy, presiding over years of supercharged credit growth that ended in a currency crash last summer. When Erdogan shifts to campaignspeak -- before local, parliamentary or presidential ballots -- he trots out the quadrillions spent.

Turkey re-denominated the lira in the aftermath of the country’s 2001 economic crisis, when inflation climbed to as much as 73 percent. Developing nations from Belarus to Zimbabwe have often used the move to try to vanquish inflation or win back confidence in their currencies at times of upheaval.

Quadrillions Spent: Erdogan's Fuzzy Math on Campaign Trail

Erdogan, who first became prime minister in 2003, also takes pride in overhauling the lira, saying his government “saved the honor of the currency” after a period when people had to pay 1 million liras to use a public toilet.

“Changing the face value of a currency, even if it is only a nominal change, can create real effects in the economy by primarily influencing people’s expectations,” says Serhat Kologlugil, head of the economics department at Isik University in Istanbul.

The question is whether the benefits can last past another crisis for the lira, which lost about a quarter of its value in August, sending inflation to a 15-year high. Resident deposits denominated in foreign currencies and gold rose by about $6 billion in the three weeks to Jan. 25, reaching a total of $166 billion, central bank data show.

Still, the lira has rallied more than 30 percent since mid-August. Investors anticipate it will be less unstable, with its three-month implied volatility now at almost a third the level at the height of the crisis last summer.

Erdogan isn’t alone in making references to old lira. The practice is still widespread in common speech and is also used by Erdogan’s opponents. In October, for example, the main opposition leader, Kemal Kilicdaroglu, complained that the government paid 692 quadrillion liras in interest on its borrowings in the past 14 years.

“Many people are yet to adapt to the correct use,” Karagozoglu said.

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