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It was also notable that Pence and Yildirim had nothing to announce as regards a potentially game-changing issue, namely the US prosecution being brought against Turkish- Iranian gold trader Reza Zarrab, accused of helping Iran evade sanctions by arranging money laundering. News agencies have reported that prosecutors say Zarrab invoked the name of Turkey’s president, Recep Tayyip Erdogan, when questioned about a scheme that allegedly received support from Turkey’s government, and Zarrab is said by some analysts to have been close to the Erdogan family.
Assessing what’s known about the outcome of the Pence-Yildir- im meeting so far, Timothy Ash, senior sovereign strategist at BlueBay Asset Management, observed in a note to investors: “My read is that both sides still understand that the US-Turkey relationship is really important, it is strategic, and that they both do want to try and normalise and to improve the relation- ship, even though is still very, very difficult... It does makes me think that this is like a married couple that are having a torrid time in the relationship, with fault on both sides, and the marriage is near break-up.”
He added: “It has begun so badly that both sides have even begun dating other admirers (Turkey – Russia, and the US – the Kurds [whom to Turkey’s anger they armed in the fight against Islamic State in Syria], et al). But in the interest of the extended family (the Western alliance) the in-laws (Pence and Yildirim) have decided to meet to see if there is still hope, and
“Turks are dependent on portfolio inflows to help finance a current account deficit”
lay all the dirty washing from both sides on the table in the hope of trying to bring resolution. Let’s see if there is enough of a spark in the relationship to keep it together.”
In his statement after the meeting, Pence relayed his “deep concern over the arrests of American citizens, Mission Turkey local staff, journalists, and members of civil society under the state of emergency [in Turkey] and urged transparency and due process in the resolution of their cases”.
These matters are also being pursued by Germany in its ongo- ing disputes with Turkey over many of Ankara’s actions under emergency laws that allow Erdogan to rule by decree.
In late October, MEPs proposed cutting Ankara’s EU pre-acces- sion funds and reports outlined how Berlin was apparently working actively to cut financing for Turkey from Germany’s state-owned KfW development bank, the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD).
Turkish central bank “sits on hands” as inflation hits 9-year high
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Analysts were scathing of Turkish central bank inaction on November 3 as the latest inflation figures showed consumer prices had accelerated to a nine-year high. Annual inflation moved up from 11.2% in September
to 11.9% in October, the steepest level recorded since October 2008, data from national statistics office TUIK showed.
Timothy Ash, the senior sovereign strategist at BlueBay Asset Management, responded in a note to investors: “Meanwhile, the [Central Bank of the Republic of Turkey] CBRT just sits on its hands. No new tightening. Credibility on the inflation front shot through.” While facing orthodox pressure from economists for monetary tightening,
the CBRT is at the same time still under sustained unorthodox pressure from Turkish President Recep Tayyip Erdogan and ministers for loosening.
In one of the latest examples of such a stance from the government, Turkish PM Binali Yildirim on October 17 said the government was working to lower interest rates to acceptable levels. This caused Ash to issue a wry rebuke, saying: “He is totally correct [about rates being disproportionate]. Given overheating traits as reflected in high and rising inflation and the widening current account deficit, rates need to be higher!” Four days previously, Erdogan, reiterating his rather unconventional view that the main cause of inflation is high interest rates, said he planned to hold talks with both public and private lenders on how to lower interest rates.
Ash said the CBRT’s inaction suggests it is “in something of a political strait-jacket at this stage, with Erdogan significantly shaping monetary policy”. The strategist advised: “CBRT strategy seems pretty clear – to hold the line on rates, not further tightening, and try and ride out near term rising inflation. They hope to hold out until base period effects bring some relief. The CBRT has been arguing that this should be in December, but I think this is becoming even less likely now, given exchange rate pass-through, wage price pressure, energy price pressure, and the impact of tax hikes. Likely the drop-off in inflation will only come now in Q1 2018, if then. The CBRT is winging all this – living on something of
a prayer.
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