Page 67 - bne_Magazine_May_2018_print

bne May 2018
Opinion 67
COMMENT: Whisper it – ‘Erdonomics’ could be driving Turkey to a meltdown
Will Conroy in Prague
Turkish President Recep Tayyip Erdogan on April 9 was unmoved in the face of the sliding Turkish lira (TRY), reiterating unorthodox monetary policies that have unnerved many investors and repeating his hard-nosed insistence that interest rates need to be lowered to “save” investors.
Analysts are not ready to call it but there’s a growing apprehen- sion that Erdogan, going hell-for-leather for short-termist growth with an eye on what could be snap parliamentary and presiden- tial elections, could risk tipping Turkey’s economy over the edge.
Moderation is not the name of the day – ask nervous inves- tors who were alarmed by last week’s reports that the last truly market-friendly member of the cabinet, Deputy Prime Minister Mehmet Simsek who leads the economic team, had handed in his resignation – and the president is simply swiping away observers warning that Turkey’s economy is overheating, labelling them
“Erdogan again knocked away the argument that monetary tightening is required to address Turkey’s double digit inflation”
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).
As the TRY registered yet another all-time low against the dollar – one USD was fetching TRY4.0755 in morning trading before trimming its losses to 4.0599 by around 21:30 Istanbul time – and broke the 5.0 threshold against the euro for the first time – touching 5.001 against the single currency – Erdogan again knocked away the argument 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 president Recep Tayyip Erdogan has some unorthodox ideas on monetary policy
Turkish currency, down around 7% against the greenback so far this year. What’s more, the populist president’s latest intrac- table stance on monetary policy amid an overheating economy heightened concern on the markets that the independence of the Turkish central bank has essentially been lost.
“How will there be investments if you do not bring down inter- est rates? We call this an investment-based incentive system,” a pugnacious Erdogan said in a speech in Ankara, 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, Erdo- gan lashed out at those who claim Turkey’s astronomic growth rates are excessive, 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 highest rates on lira deposits since the aftermath of the global financial crisis. They cited Bloomberg HT television data detailing how average interest rates on overal deposits stood at 12.81% at the end of March. Turkey’s high inflation, at around 10.2%, has caused interest rates on loans to rise towards an annual 20%, curbing demand for credit from businesses and consumers.
Past form
William Jackson, senior emerging markets economist at Capital Economics, said that “if past form is anything to go by”, the lira would need to drop by another 5% or so, to about TRY4.25 to the dollar, in the next week or two to prompt
a significant monetary policy response from the Central
Bank of the Republic of Turkey (CBRT). But there are those who wonder if even then it would dare act in the face of ‘Erdonomics’.
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