Should we believe your word, or the bond you signed?

For years, we have been listening to fairy tales about “single-digit inflation in two years, and 5 percent inflation from the third year onwards.” 

The Central Bank fails to meet the inflation target it announces every year. Treasury and Finance Minister Mehmet Şimşek says the disinflation program is working, but the Treasury, which is under his own authority, does not believe it. 

We make this assessment by looking at the Treasury borrowing auctions held last week. On August 20, the esteemed journalist Alaattin Aktaş wrote in Ekonomim Gazetesi. We must bring the resulting anomaly to the agenda at every opportunity. In the fixed-rate bond auctions with semi-annual coupon payments held by the Treasury last week;

The annual compound interest rate for 581-day maturity (approximately 19 months) borrowing was 41.68 percent,

The interest rate for 1708-day (approximately 5 years) maturity borrowing was 39.29 percent,

The interest rate for 3304-day (approximately 9 years) maturity borrowing was 35.12 percent.

If inflation is going to fall to single digits in a few years and then to 5 percent, why is the Treasury borrowing by committing to pay very high interest rates for years?

A similar borrowing story occurred last October, and I wrote about it on October 19, 2025, in 12 Punto with the headline “Inflation will fall: Those who do not believe their own words.” They had set a 9 percent inflation target for two years later, and they had carried out two-year Treasury borrowing at 40 percent interest and 10-year Treasury borrowing at 32 percent interest. 

About ten months have passed. Now the same question has come up again. If inflation is going to reach single-digit levels in two years and then 5 percent, why is the annual compound interest rate for 1708-day (approximately 5 years) maturity borrowing now 39 percent, and the annual compound interest rate for approximately 9-year maturity borrowing 35 percent?  Alaattin Aktaş reminds us that the same bond was issued in January of this year with an interest rate of 29.09 percent and says that after seven months, the 9-year borrowing interest rates have technically risen by about 6 points. 

I wrote about this last week. Every Treasury borrowing that takes place confirms this. The central government debt stock has reached 14 trillion 993 billion liras. The interest rate hike is now working on a debt stock approaching 15 trillion liras. The entire debt is not repriced at the same time, but as maturities arrive, old debt is rolled over at higher interest rates. 

This means the following: We have prevented future generations from even dreaming, and that is not all; we are also inflating the debt bill for our children and grandchildren. 

Should we believe your rhetoric that inflation will fall, or should we believe the signature you placed on a bond for 35 percent interest 9 years from now?

I do not look at words, I look at the signature you placed.  

5 PERCENT INFLATION, 35 PERCENT INTEREST

The Central Bank's medium-term target has been 5 percent for years. It is said that inflation will first be reduced to 20 percent, then to 10 percent, and finally to 5 percent. Well, if that really happens, what will happen to this borrowing made today? While inflation has fallen to 5 percent, the state will continue to pay 35.12 percent interest.

In an environment of 5 percent inflation, a nominal interest rate of 35.12 percent per year means a real interest rate of approximately 28.7 percent.

For those who lend to the state for nine years, this is a massive real gain; for the state and taxpayers, it is a massive real cost.

There is only one way left for this debt, taken today at 35 percent interest, not to turn into a very heavy real burden on the state and taxpayers. That is for inflation to hover around 35 percent, or even higher, for years…

In that case, the state pays the lender the interest it promised in nominal terms, but inflation erodes the purchasing power of the money it pays. In a sense, the state takes back a portion of the interest it paid from those earning interest income through the inflation tax.

But this time, another cost emerges. Inflation does not fall. The misery of segments that cannot increase their own income in the face of inflation increases even more. The middle class, which has already lost its strength, disappears completely. The already broken income and wealth distribution becomes even worse.  

The persistence of a high-inflation environment means the further deterioration of many institutions, especially democracy, and the acceleration of the collapse beginning in the social structure.

Whether we lower inflation or not, the bill falls on the worker, the civil servant, the farmer, the small tradesman, and those with low and fixed incomes.

If we lower inflation, we will transfer high real interest to the rentier class with our taxes.

If we cannot lower inflation, this time our purchasing power will erode even further.

DEBT IS GROWING, INTEREST IS GROWING

We are not talking about a single bond issuance. We are tumbling into an abyss of rolling over debt at increasingly higher costs. According to the Central Bank's Balance of Payments Account, we paid 232 billion dollars in interest and portfolio income to the outside world from 2004 to the end of 2025. But when we look at the periodic averages, we see that this picture is gradually deteriorating. 

In the 2004-2009 period, we were making an average annual interest and dividend payment of 9.4 billion dollars. The average of the last three years has been 19.8 billion dollars. In 2025, the amount of interest and dividends we paid abroad reached 24.8 billion dollars. (1)

We observe the same disaster in interest payments made from the budget. Before the transition to the Presidential Government System, the share of interest payments in budget expenditures was 8.4 percent. In 2025, it jumped to 14 percent. In the first seven months of this year, the share of interest payments in the budget reached 17 percent.  

Turkey's external debt is 539 billion dollars, and the central government debt stock has reached 15 trillion liras. Both our external debt and our central government debt stock are growing rapidly. The ratio of this debt to national income is underestimated by some as not being very important. But the cost of rolling over the debt is increasing every day. In a debt stock of this size, even a few points of interest rate hikes bring hundreds of billions of liras in additional burden to future budgets.

(1) The Central Bank revised its Balance of Payments accounts retroactively until 2020. I have not yet calculated the entire new series. However, we already know that in 2025 alone, interest payments on portfolio investments made abroad were 4.8 billion dollars more than previously announced.