World Bank: $500 billion - the estimated cost of insuring Turkey's housing stock

The estimated cost of insuring Turkey's housing stock against future earthquakes is $500 billion, the World Bank's director for Turkey, Humberto Lopez, reports balkaninsight.com.

"If we wanted to make the existing houses in Turkey resistant, the total cost would be 500 billion dollars. We are talking about half a trillion dollars, which is more than 50% of the Gross National Product," Lopez said at a meeting at the Istanbul Stock Exchange, according to Bloomberg HT.

According to his claims, the devastating earthquakes of February 2023 cost Turkey about $100 billion, or one-eighth of the country's GDP in 2021.

The worst earthquakes in February 2023, measuring 7.8 and 7.6 on the Richter scale, devastated 11 provinces in southern and southeastern Turkey, killing at least 55,000 people and leaving millions more homeless.

• Bank of Turkey raises key interest rate to 40%

The Bank of Turkey decided yesterday to increase the monetary policy interest by 500 basis points, up to 40%, which is the highest level recorded since the coming to power of Recep Tayyip Erdogan, reports AFP.

The increase decided by the Bank of Turkey is much higher than the market estimates, which were counting on an increase of 250 basis points. The institution explained in a press release that "the current level of monetary tightening is significantly closer to the level required to establish a disinflationary course. Consequently, the rate of monetary tightening will slow down and the tightening cycle will be completed in a shorter period of time".

Since the presidential elections in May, which reconfirmed President Erdogan in power, the new team at the management of the central bank of Turkey and the Ministry of Economy has taken the reference interest rate from 8.5% to 40%, in the attempt to control an inflation that last month was 61.36%, according to official figures, notes Agerpres.

According to economists, the need to bring the cost of credit to the highest level since Recep Tayyip Erdogan came to power in 2002 indicates the extent of the crisis that Turkey is going through as a result of the policies followed by the head of state.

Contrary to classical economic theories, President Erdogan has long argued that high interest rates favor inflation. Consequently, Erdogan pressed the central bank to reduce the monetary policy interest rate to support production and exports. But the low interest rates fueled inflation which, in October of last year, rose to a level of 85%. In parallel, the Turkish lira collapsed as Turks tried to save their savings by buying dollars and gold.

After winning the presidential elections in May of this year, Erdogan changed his view and appointed two former Wall Street bankers, Mehmet Simsek and Hafize Gaye Erkan, to the positions of Minister of Finance and Bank Governor, respectively central. The new team of technocrats began to eliminate the "unorthodox" measures previously adopted and which are considered guilty of driving away foreign investors and causing a series of monetary crises.

Currently, Erdogan seems satisfied with his new economic team and recently declared that the Turkish economy "could soon enter a virtuous cycle" of disinflation and appreciation of the lira. "We will win the trust of investors with our healthy policies and structural reforms", concluded the Turkish president.