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April 13, 2018 www.intellinews.com I Page 2
‘Erdonomics’ could be driving Turkey to a meltdown
Moderation is not the word of the day — ask nerv- ous investors who were alarmed by last week’s reports that the last truly market-friendly mem- ber of the cabinet, Deputy Prime Minister Mehmet Simsek who leads the economic team, had hand- ed in his resignation — and the president is simply swiping away observers warning that Turkey’s economy is overheating.
Having started the week by merely labelling them envious of his country’s supercharged economic success (the Turkish economy, at 7.4% in 4Q
last year and 11.3% in 3Q, is now growing faster than the economies of China and India), by April 11 he was rather more menacing, warning that conspiratorial outside forces who wanted “to discipline us based on exchange rates” would
fail and referring to actors on the business and financial markets who were waging “economic terror”, using geopolitical tensions over conflict- torn Syria as a pretext. “When the time comes, [they will] be held accountable and pay the price,” he told an audience in Ankara.
The lira registered its latest all-time low against the dollar on April 11 — one US dollar was fetch- ing TRY4.1944 — and broke the 5.0 threshold against the euro for the first time — touching 5.001 against the European single currency. By the close of April 12, one dollar bought TRY4.1119 after some reassuring noises from the central bank that it was prepared do what was “neces- sary” in monetary policy.
Central bank’s independence questioned
Not that anyone was growing too confident that that will turn out to be the case. Erdogan has again given short shrift to the conventional ar- gument that monetary tightening is required to address Turkey’s double digit inflation, one of the world’s worst current account deficits and the fast depreciating Turkish currency, down around 8% against the greenback so far this year. What’s more, the populist president’s latest intractable stance on monetary policy amid an overheating economy has heightened concern on the markets that in fact the independence of the Turkish cen- tral bank has essentially been lost, whatever its governor might say.
“How will there be investments if you do not bring down interest rates? We call this an investment- based incentive system,” a pugnacious Erdogan said in an April 9 speech in the Turkish capital, where he unveiled a $34bn investment incentive package to help Turkish companies. “You have to save the investor from high interest rates so that these investments could be made,” he added.
Despite the sheer weight of analytical opinion against him, Erdogan lashed out at those who claim Turkey’s astronomic growth rates are exces- sive, claiming they speak out of jealousy. Turkish growth was creating more just income distribution and he was hopeful that unemployment would soon drop below 10%. Growth means investment, investment means employment, production, technology, exports and prosperity, ran Erdogan’s argument.
Erdogan wastes no opportunity to urge banks to lend more money to the economy to spur growth and April 9 brought local media reports that cash-hungry lenders were now offering the high- est rates on lira deposits since the aftermath of