VISITORS TO TURKEY are often surprised to discover that in a country supposedly consumed by economic malaise, the restaurants, at least in large cities, are often bursting with customers. But appearances are deceptive. A big reason for the bustle is that middle-class Turks would rather spend their earnings today than watch inflation, officially measured at 55% but believed to be much higher, burn through their savings tomorrow.

By slashing interest rates, even in the face of galloping prices, and thereby allowing the lira to plummet, Turkey’s president, Recep Tayyip Erdogan, hoped to turbocharge the country’s economy by making exports cheaper and encouraging domestic production. The policy mix, repackaged as Turkey’s “new economic programme”, would bring inflation down to single digits ahead of this year’s presidential and parliamentary elections, his finance minister pledged. Things have not exactly gone according to plan.

Imports, now much more expensive but necessary, have in fact dwarfed exports, landing Turkey with its biggest current-account deficit for four decades. Inflation may have dipped from a high of 85% last year, thanks less to government policies than to base effects, but it remains by far the highest in the OECD. Growth continues, but that is thanks less to exports than to an unsustainable surge in consumption. Mr Erdogan’s economic model seems to have run its course.

The poor state of the economy, compounded by the impact of the earthquakes that killed over 50,000 people in the country’s south in early February, has darkened Mr Erdogan’s election prospects. Opinion polls now show Turkey’s leader trailing the opposition’s joint candidate for president, Kemal Kilicdaroglu, by four or more points. For a populist strongman who enjoys the perks of a servile news media and control over the country’s institutions, that deficit is hardly insurmountable. But it is the biggest hole Mr Erdogan has faced ahead of any major election.

How he plans to dig himself out of it remains unclear. The elections are set for May 14th, with a run-off, if no candidate gets an absolute majority in the presidential contest, on May 28th. And although more tends to happen in Turkey in two months than in most other countries in two years, Mr Erdogan seems to be running out of ideas, especially as far as the economy is concerned. Sensing a historic chance, the opposition is closing ranks. On March 22nd, the country’s main Kurdish party said it would not, as had been feared, field its own candidate for the presidency, suggesting it would endorse Mr Kilicdaroglu and avoid splitting the opposition vote.

For now Mr Erdogan is signalling, at least to the outside world, a willingness to behave. On March 17th, he endorsed Finland’s bid to enter NATO, which he had been blocking since last year. (Sweden, another NATO hopeful, which Turkey accuses of harbouring Kurdish militants, remains in Mr Erdogan’s doghouse.) Turkey also banned the transit to Russia through its territory of goods under sanctions, a big source of friction with Turkey’s allies in NATO. More recently, Mr Erdogan asked Mehmet Simsek, one of the architects of Turkey’s boom in the early 2000s, to rejoin his team. Mr Simsek, who had been replaced as the government’s economy tsar by Mr Erdogan’s son-in-law in 2018, demurred.

Last month’s earthquakes, which flattened entire cities and towns in southern Turkey, displacing some 3.3m people, may be one reason for the change in tone. Reconstruction is expected to cost more than $100bn, the government estimates. Since a large chunk of that money will have to come from Western countries, Mr Erdogan has every reason to want to patch up relations with foreign investors and allies.

The government’s badly delayed response to the quakes dented support for Mr Erdogan and his Justice and Development (AK) party. But the scale of the tragedy has also turned what would by now have been a loud and aggressive election campaign into a more sombre affair. This comes as a boon to the opposition. Mr Erdogan has become accustomed to campaigning as a wartime president, invoking threats to national security, such as a violent coup attempt in 2016, to accuse opponents of treason and Western governments and financiers of conspiring against Turkey. With images of the quake and of foreign and Turkish teams working side by side to rescue survivors fresh in the minds of most voters, there may be less room for such rabble-rousing.

Assuming that the risk of losing power becomes more pronounced, however, Mr Erdogan may start reverting to type. One option may be a renewed confrontation with Greece over maritime borders, says Selim Koru, an analyst at the Economic Policy Research Foundation of Turkey. An election in Greece, also now expected in May, makes the risk of a clash, at best of words and of arms at worst, more likely. Domestic politics may prevail over cooler heads. “I’m not sure these guys will go quietly,” says Mr Koru, referring to Mr Erdogan and his circle.

When it comes to the economy, the Turkish leader’s options are more limited. Over the past three months, the government has increased the minimum wage by 55%, more than doubled the basic pension, and passed a law making millions of Turks eligible for early retirement. Mr Erdogan may announce further handouts during the holy month of Ramadan, which began on March 23rd. His best hope, however, is that the economy, which grew by a sprightly 5.6% last year, largely thanks to laughably cheap loans and a spike in consumer demand, will keep humming until the elections.

Mr Erdogan holds all the economic and monetary policy levers in his hands, but has been pulling them in opposite directions. Cuts to the benchmark interest rate, by more than ten percentage points since 2021, drove the lira to new depths last year, but allowed exports to reach a record $254bn. Imports however surged to $364bn, also a new high. The current-account deficit, the measure of Turkey’s balance of payments with the rest of the world, ballooned to $10bn in January.

To prevent the lira from plummeting further, however, Turkish officials have been rationing bank loans and selling tens of billions of dollars of foreign reserves, leaving the central bank’s coffers depleted. The lira, which has lost an astonishing 80% of its dollar value in five years, has now stabilised, but only at the expense of the very exporters Mr Erdogan’s model was expected to benefit. Turkish exporters now say the currency is overvalued, and is squeezing profits. “They have become exchange-rate addicts,” says Cevdet Akcay, an economist. “They were ecstatic, and now they’re complaining again.”

Ordinary Turks, meanwhile, are stuck with the bill for Mr Erdogan’s experiment, in the form of a cost-of-living crisis. Other than managing the exchange rate, the government has done next to nothing to keep price growth in check. On March 23rd, the country’s central bank kept the benchmark interest rate unchanged, at 8.5%. Adjusted for inflation, credit in Turkey is cheaper than anywhere in the world.

The economy is running on borrowed time, says Selva Demiralp of Istanbul’s Koc University. “They’re trying to sustain the current system until the elections, before it blows up,” she says of Mr Erdogan and his cabinet. Without a return to factory settings, Turkey may soon face another currency crisis and a fresh surge in consumer prices. Bringing inflation under control will be hard enough for a new government, says Mr Akcay. “For this one, it has become impossible.”■