David Rosenberg/Haaretz/Turkey Crisis: Erdogan Resorts to Fantasy, Paranoia to Grapple With Crashing Lira دايفيد روزنبارغ من الهآررتس/الأزمة التركية: اردوغان يهرب من مواجهة انهيار عملة بلاده باللجؤ إلى مبررات الخيال وجنون الشكوك
Analysis/Turkey Crisis: Erdogan Resorts to Fantasy, Paranoia to Grapple With Crashing Lira دايفيد روزنبارغ من الهآررتس/الأزمة التركية: اردوغان يهرب من مواجهة انهيار عملة بلاده باللجؤ إلى مبررات الخيال وجنون الشكوك
David Rosenberg/Haaretz/August 14/18
Rather than owning up to his own fatal errors, Erdogan is blaming foreign conspiracies for Turkey’s failing economy – and Trump is only making matters worse.
More than most economic crises, the one Turkey is now facing is the work of one man alone: Recep Tayyip Erdogan. He has been in office for 16 years, during which he has amassed more and more power and put into place the irresponsible and often idiosyncratic economic policies that are responsible for the plunging of the Turkish lira.
Turkish voters could have put an end to this many times, but instead returned him to office, stood by passively as he imposed emergency rule after the 2016 failed coup and granted him extraordinary powers under an amended constitution. In the meantime, he presided over an economic boom built on cheap money, imported capital and real estate development.
It couldn’t last and by this spring it was obvious that the end of the boom years was approaching. But again Turkish voters re-elected Erdogan with full knowledge that not only would he continue pursuing his bizarre economic strategy – whose centerpiece concept is that high interest rates cause inflation – but that there would be no institution legally empowered to resist him.
And that is what is happening. The Turkish lira is in free fall, which will leave Turkey’s dollar-indebted corporate sector with debts they can’t repay, threatens to create a banking crisis, will stoke Turkey’s already high inflation rate and could easily push the economy into a deep recession.
There isn’t any easy way out of this for the government, but the obvious immediate solution would be for the central bank to raise interest rates far higher than they are now to at least stabilize the exchange rate. That is what any ordinary government would have done long before its currency has lost 40% of its value, as the lira has done.
Instead, the Turkish central bank (which is now beholden to Erdogan) and the finance minister (related to him by marriage) offered some aspirin in the form of extra liquidity to the banking system at a time when major surgery is required. For now, at least there will be no rate rise or capital controls that would stem the decline. The option of an International Monetary Fund bailout seems unlikely, too, because it would require Erdogan to adopt policies he deeply opposes and accept a humiliating future of taking orders from an overseas institution.
If the first prong of Erdogan’s economic policy is fantasy, the second one is an equally dangerous one of paranoia. Rather than owning up to the errors that have pushed Turkey into a crisis, the president has been telling Turks it’s all about foreign conspiracies aimed at putting Turkey in its place.
“We are facing economic attacks today, and we need to defend our country,” Erdogan said last week in remarks that are typical of his approach. “The economic attack against us now is the same as the coup attempt against us.” With that, the president has urged ordinary Turks to change the euros, dollars and gold “that you are keeping beneath your pillows” into lira and step up exports.
Erdogan may well get his extra exports, but not because patriotic Turkish industrialists answer his call but because the value of the lira has collapsed, which makes the goods more price competitive overseas. As to selling dollar and buying liras, it simply won’t happen; indeed, the reason why the lira has been depreciating as it has is because Turks have for quite some time been bailing out of their currency. Erdogan’s policies give Turks no good reason to change their attitude.
