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Turkey pledges lira support as President Erdoğan announces US goods boycott – as it happened Turkey pledges lira support as President Erdoğan announces US goods boycott – as it happened
(about 4 hours later)
A late update: Donald Trump is increasingly unhappy that Turkey still hasn’t released Andrew Brunson from house arrest, two years after the pastor was arrested on espionage charges.
White House Press Secretary Sarah Sanders told a press briefing that:
“The president has a great deal of frustration on the fact that Pastor Brunson has not been released as well as the fact that other U.S. citizens and employees of diplomatic facilities have not been released.
Sanders says President Trump will continue to call on Turkey to release Pastor Brunson and other prisoners.
Time for a recap.Time for a recap.
Turkey’s government has come out fighting today against the market turmoil that sent its currency tumbling in recent days.Turkey’s government has come out fighting today against the market turmoil that sent its currency tumbling in recent days.
Recep Tayyip Erdoğan raised the stakes, declaring that Turkey will boycott electronic products from the US. The Turkish president told an audience in Ankara that:Recep Tayyip Erdoğan raised the stakes, declaring that Turkey will boycott electronic products from the US. The Turkish president told an audience in Ankara that:
“We will boycott US electronic products.“We will boycott US electronic products.
“If they have iPhone, the other side has Samsung. In our country there is Venus, Vestel.”“If they have iPhone, the other side has Samsung. In our country there is Venus, Vestel.”
Finance minister Berat Albayrak also tried to restore confidence, pledging:Finance minister Berat Albayrak also tried to restore confidence, pledging:
We will make all kinds of preparations, from A to Z....We will make all kinds of preparations, from A to Z....
You will see that our lira will become stronger.”You will see that our lira will become stronger.”
Albayrak also took a swing at America, saying that the US dollar had lost credibility after being used as a tool for “political punishment”.Albayrak also took a swing at America, saying that the US dollar had lost credibility after being used as a tool for “political punishment”.
Turkey’s environment minister also jumped on the boycott bandwagon, saying US products wouldn’t be used for Turkish construction projects.Turkey’s environment minister also jumped on the boycott bandwagon, saying US products wouldn’t be used for Turkish construction projects.
After days of losses, the lira has finally caught a break. It has rallied by over 8% against the US dollar today, back to 6.3 lira to the $, from almost 6.9 on Monday night.After days of losses, the lira has finally caught a break. It has rallied by over 8% against the US dollar today, back to 6.3 lira to the $, from almost 6.9 on Monday night.
But the diplomatic rift between Turkey and the US hasn’t been fixed. The White House is still demanding the release of American evangelical pastor Andrew Brunson, who has been held since the 2016 coup.But the diplomatic rift between Turkey and the US hasn’t been fixed. The White House is still demanding the release of American evangelical pastor Andrew Brunson, who has been held since the 2016 coup.
Analysts argue that Turkey needs to take decisive steps to prevent the market mayhem continuing; eg, an interest rate hike, improved relations with America, and a strategy to lower Turkey’s current account deficit.Analysts argue that Turkey needs to take decisive steps to prevent the market mayhem continuing; eg, an interest rate hike, improved relations with America, and a strategy to lower Turkey’s current account deficit.
Ripples from the Turkish crisis pushed India’s rupee to a record low this morning, apparently forcing the Indian central bank to intervene in the FX markets. Over developing market currencies, such as the Mexican peso and the South African rand, strengthened though.Ripples from the Turkish crisis pushed India’s rupee to a record low this morning, apparently forcing the Indian central bank to intervene in the FX markets. Over developing market currencies, such as the Mexican peso and the South African rand, strengthened though.
In other news....In other news....
Britain’s unemployment rate has fallen to a new 43-year low, but wage growth remains disappointingly slow.Britain’s unemployment rate has fallen to a new 43-year low, but wage growth remains disappointingly slow.
Germany has posted 0.5% growth in the last quarter, helping the wider eurozone to expand by 0.4% - the same the the UK.Germany has posted 0.5% growth in the last quarter, helping the wider eurozone to expand by 0.4% - the same the the UK.
After a calmer day than Monday, European stock markets have closed for the night.After a calmer day than Monday, European stock markets have closed for the night.
Britain’s FTSE 100 fell by 30 points, or 0.4%, even though worries about Turkey have faded.Britain’s FTSE 100 fell by 30 points, or 0.4%, even though worries about Turkey have faded.
Mining stocks dragged the index down, as investors switched their attention to worrying about China instead.Mining stocks dragged the index down, as investors switched their attention to worrying about China instead.
David Madden of CMC Markets explains:David Madden of CMC Markets explains:
Mining stocks are in the red after China revealed disappointing economic indicators overnight. Beijing confirmed that fixed asset investment grew by 5.5% - a record low. Industrial output held steady at 6% in July, but economists were expecting an increase of 6.3%. Retail sales rose by 8.8%, which was below the 9.1% forecast, and it was a slower rate compared with the 9% growth in June.Mining stocks are in the red after China revealed disappointing economic indicators overnight. Beijing confirmed that fixed asset investment grew by 5.5% - a record low. Industrial output held steady at 6% in July, but economists were expecting an increase of 6.3%. Retail sales rose by 8.8%, which was below the 9.1% forecast, and it was a slower rate compared with the 9% growth in June.
The updates suggest that the Chinese economy is continuing to soften, and this prompted traders to dump mining stocks like Glencore, BHP Billiton and Rio Tinto.The updates suggest that the Chinese economy is continuing to soften, and this prompted traders to dump mining stocks like Glencore, BHP Billiton and Rio Tinto.
The German DAX ended the day flat while the French CAC index dipped by 0.17%.The German DAX ended the day flat while the French CAC index dipped by 0.17%.
And in Istanbul, the Turkish stock market closed 0.75% higher - recovering some of Monday’s selloff.And in Istanbul, the Turkish stock market closed 0.75% higher - recovering some of Monday’s selloff.
At some stage, the Turkish leadership must move on from simply promising to protect the lira, and actually take action.At some stage, the Turkish leadership must move on from simply promising to protect the lira, and actually take action.
Mujtaba Rahman of Eurasia Group says president Erdoğan must take three steps.Mujtaba Rahman of Eurasia Group says president Erdoğan must take three steps.
The Turkish crisis could be a good opportunity for the EU to strengthen its relationship with Ankara. After all, both sides have experienced Donald Trump’s confrontational approach to diplomatic relations and trade.The Turkish crisis could be a good opportunity for the EU to strengthen its relationship with Ankara. After all, both sides have experienced Donald Trump’s confrontational approach to diplomatic relations and trade.
Rahman says:Rahman says:
Trump’s unpopularity in Europe makes it highly unlikely EU leaders are going to rally behind his approach. If anything, senior EU officials point to the “commonalities” that the EU and Turkey now both face vis-à-vis the US—on tariffs, threats and much besides—and suggest these might be used as a jumping off point for any discussion that follows: “We will tell the Turks we have sympathy for the situation they are in, but not how they are handling it”, says one.Trump’s unpopularity in Europe makes it highly unlikely EU leaders are going to rally behind his approach. If anything, senior EU officials point to the “commonalities” that the EU and Turkey now both face vis-à-vis the US—on tariffs, threats and much besides—and suggest these might be used as a jumping off point for any discussion that follows: “We will tell the Turks we have sympathy for the situation they are in, but not how they are handling it”, says one.
Multiple meetings between EU and Turkish counterparts over the coming months will present an opportunity for the EU to better assess the situation; convey its concerns about Turkey’s deep-seated economic problems and reforms needed to fix them; and to potentially strengthen co-operation with Ankara. Turkey will be represented at the EU foreign ministers meeting at the end of the month; a potential Turkey, Russia, France and Germany summit, though still not confirmed, is scheduled for 7 September; and Erdogan is slated to meet with German Chancellor Angela Merkel at the end of September.Multiple meetings between EU and Turkish counterparts over the coming months will present an opportunity for the EU to better assess the situation; convey its concerns about Turkey’s deep-seated economic problems and reforms needed to fix them; and to potentially strengthen co-operation with Ankara. Turkey will be represented at the EU foreign ministers meeting at the end of the month; a potential Turkey, Russia, France and Germany summit, though still not confirmed, is scheduled for 7 September; and Erdogan is slated to meet with German Chancellor Angela Merkel at the end of September.
Erdogan is also likely to want to avoid triggering another crisis with the EU. Indeed, earlier yesterday, Albayrak tweeted a very positive response to German Economics Minister Peter Altmaier’s criticism of new US tariffs. The Turkish mainstream (i.e. pro-AKP) media have also been quoting dovish remarks by Merkel.Erdogan is also likely to want to avoid triggering another crisis with the EU. Indeed, earlier yesterday, Albayrak tweeted a very positive response to German Economics Minister Peter Altmaier’s criticism of new US tariffs. The Turkish mainstream (i.e. pro-AKP) media have also been quoting dovish remarks by Merkel.
This suggests EU-Turkey relations are likely to continue to thaw, as we saw on 17 May at the EU-Western Balkans summit in Sofia.This suggests EU-Turkey relations are likely to continue to thaw, as we saw on 17 May at the EU-Western Balkans summit in Sofia.
The blizzard of comments from top Turkish politicians is helping to underpin the country’s currency.The blizzard of comments from top Turkish politicians is helping to underpin the country’s currency.
As this chart shows, the lira has recovered to around 6.5 lira-to-the-US dollar today - down from 6.88 lira/$ at the close of play on Monday.As this chart shows, the lira has recovered to around 6.5 lira-to-the-US dollar today - down from 6.88 lira/$ at the close of play on Monday.
Traders are cheered by finance minister Albayrak’s pledge to make the lira stronger, and his pledge to stick to free market principles. That’s being taken as a pledge not to impose capital controls to shore up the exchange rate.Traders are cheered by finance minister Albayrak’s pledge to make the lira stronger, and his pledge to stick to free market principles. That’s being taken as a pledge not to impose capital controls to shore up the exchange rate.
Finance minister Berat Albayrak also pledged:Finance minister Berat Albayrak also pledged:
“We will protect the lira, we will march with the lira and the lira will strengthen greatly in the coming period.”“We will protect the lira, we will march with the lira and the lira will strengthen greatly in the coming period.”
And on the US dollar, he said:And on the US dollar, he said:
“The dollar has lost its credibility.“The dollar has lost its credibility.
In times when the dollar has been turned into a tool for political punishment, we will continue to strongly take steps to protect the lira in international trade.”In times when the dollar has been turned into a tool for political punishment, we will continue to strongly take steps to protect the lira in international trade.”
Turkey’s finance chief has pledged to protect Turkish companies through the currency crisis, and predicted that the lira will recover its losses.Turkey’s finance chief has pledged to protect Turkish companies through the currency crisis, and predicted that the lira will recover its losses.
Berat Albayrak, Treasury and finance minister (and president Erdoğan’s son-in-law), said the government would protect the economy while sticking to free market rules and maintaining fiscal discipline.Berat Albayrak, Treasury and finance minister (and president Erdoğan’s son-in-law), said the government would protect the economy while sticking to free market rules and maintaining fiscal discipline.
Details were scarce, though - but it’s enough to keep the lira around 6.5 to the US dollar, a 5% gain today.Details were scarce, though - but it’s enough to keep the lira around 6.5 to the US dollar, a 5% gain today.
Albayrak told members of the ruling AK Party, that:Albayrak told members of the ruling AK Party, that:
“We will make all kinds of preparations, from A to Z....“We will make all kinds of preparations, from A to Z....
You will see that our lira will become stronger.”You will see that our lira will become stronger.”
(thanks to Associated Press for the quote).(thanks to Associated Press for the quote).
Albayrak also followed Erdoğan’s lead, by declaring that the US dollar is being used a means to “politically” punish nations, and has lost credibility.Albayrak also followed Erdoğan’s lead, by declaring that the US dollar is being used a means to “politically” punish nations, and has lost credibility.
That’s a bold claim, given the US dollar has strengthened to a one-year high, while Turkey’s currency slumped to an all-time low of 7 lira to the dollar yesterday....That’s a bold claim, given the US dollar has strengthened to a one-year high, while Turkey’s currency slumped to an all-time low of 7 lira to the dollar yesterday....
JUST IN: Turkey's finance minister says the US dollar has 'lost its credibility'JUST IN: Turkey's finance minister says the US dollar has 'lost its credibility'
Turkey’s boycott of American goods is gathering pace!Turkey’s boycott of American goods is gathering pace!
The Turkish environment minister, Murat Kurum, has announced that Turkey will not use US goods in construction projects, Reuters reports.The Turkish environment minister, Murat Kurum, has announced that Turkey will not use US goods in construction projects, Reuters reports.
Kurum added that Turkey was going through an economic siege, due to ‘speculative moves’ in the value of the US dollar.Kurum added that Turkey was going through an economic siege, due to ‘speculative moves’ in the value of the US dollar.
The idea that Turkey will stop buying iPhones has received a mixed reception on the streets of Istanbul.The idea that Turkey will stop buying iPhones has received a mixed reception on the streets of Istanbul.
Some Turkish citizens support president Erdoğan’s boycott of US electronics, but others think the idea won’t work.Some Turkish citizens support president Erdoğan’s boycott of US electronics, but others think the idea won’t work.
Reuters reports:Reuters reports:
“We supported him with our lives on July 15,” shopkeeper Arif Simsek said, referring to a failed 2016 military coup. “And now we will support him with our goods. We will support him until the end.”“We supported him with our lives on July 15,” shopkeeper Arif Simsek said, referring to a failed 2016 military coup. “And now we will support him with our goods. We will support him until the end.”
But shopkeeper Umit Yilmaz scoffed. “I have a 16-year-old daughter. See if you can take her iPhone away ... “All these people are supposed to not buy iPhones now? This can’t be.”But shopkeeper Umit Yilmaz scoffed. “I have a 16-year-old daughter. See if you can take her iPhone away ... “All these people are supposed to not buy iPhones now? This can’t be.”
America has renewed its efforts to get pastor Andrew Brunson released from house arrest, two years after he was accused of espionage related to the 2016 Turkish attempted coup.America has renewed its efforts to get pastor Andrew Brunson released from house arrest, two years after he was accused of espionage related to the 2016 Turkish attempted coup.
Reuters has the details:Reuters has the details:
The U.S. Charge d’Affaires in Turkey visited Andrew Brunson, the evangelical pastor whose detention and trial on terrorism charges has sparked a crisis between the two countries, and repeated a call on Tuesday for his case to be resolved.The U.S. Charge d’Affaires in Turkey visited Andrew Brunson, the evangelical pastor whose detention and trial on terrorism charges has sparked a crisis between the two countries, and repeated a call on Tuesday for his case to be resolved.
Jeffrey Hovenier, speaking outside Brunson’s home in the coastal province of Izmir where he is under house arrest, said Washington wanted the pastor’s case “as well as the case of the other unjustly detained Americans, and the Turkish national employees of the U.S. diplomatic mission” resolved fairly, swiftly and transparently.Jeffrey Hovenier, speaking outside Brunson’s home in the coastal province of Izmir where he is under house arrest, said Washington wanted the pastor’s case “as well as the case of the other unjustly detained Americans, and the Turkish national employees of the U.S. diplomatic mission” resolved fairly, swiftly and transparently.
I mentioned earlier that White House National Security Adviser John Bolton told Turkey’s US ambassador yesterday that relations between the two countries won’t thaw until Brunson is released.I mentioned earlier that White House National Security Adviser John Bolton told Turkey’s US ambassador yesterday that relations between the two countries won’t thaw until Brunson is released.
The Turkish lira is holding onto its earlier gains, and is still up 5% at 6.5 lira to the US dollar.The Turkish lira is holding onto its earlier gains, and is still up 5% at 6.5 lira to the US dollar.
Edward Park of investment management firm Brooks MacDonald fears the rally won’t last, though, unless Ankara take decisive action.Edward Park of investment management firm Brooks MacDonald fears the rally won’t last, though, unless Ankara take decisive action.
Turkey is rebounding from a low base but the lack of USD liquidity & US political impasse hasn't changed. Rally likely to be short lived unless we see meaningful reforms & rate hikes. I discussed #TurkeyCrisis with @steve_sedgwick & @cnbcKaren earlier https://t.co/CCoxUSjk0f pic.twitter.com/GOp9rAHx4UTurkey is rebounding from a low base but the lack of USD liquidity & US political impasse hasn't changed. Rally likely to be short lived unless we see meaningful reforms & rate hikes. I discussed #TurkeyCrisis with @steve_sedgwick & @cnbcKaren earlier https://t.co/CCoxUSjk0f pic.twitter.com/GOp9rAHx4U
How bad could the situation in Turkey get?How bad could the situation in Turkey get?
Nick Brooks of asset management firm Intermediate Capital Group believes things will get worse before they get better, given its weak economic position.Nick Brooks of asset management firm Intermediate Capital Group believes things will get worse before they get better, given its weak economic position.
Brooks argues for a sharp hike in interest rates (from 17.75% today):Brooks argues for a sharp hike in interest rates (from 17.75% today):
The fundamental problem in Turkey has been the build-up of unsustainable economic imbalances (current account deficit if 6.3% of GDP, Corporate foreign exchange debt is 35% of GDP, inflation rate of 16%), while the economy is now in a vicious downward spiral with the fall in the lira leading to concerns about corporate and financial sector solvency, further pushing down the currency and increasing capital outflows.The fundamental problem in Turkey has been the build-up of unsustainable economic imbalances (current account deficit if 6.3% of GDP, Corporate foreign exchange debt is 35% of GDP, inflation rate of 16%), while the economy is now in a vicious downward spiral with the fall in the lira leading to concerns about corporate and financial sector solvency, further pushing down the currency and increasing capital outflows.
Only a sharp hike in interest rates to halt capital outflows and incentivise inflows will halt the downward spiral.Only a sharp hike in interest rates to halt capital outflows and incentivise inflows will halt the downward spiral.
Capital controls, if implemented, will not be effective as Turkey needs foreign capital inflows to fund its current account deficit and to re-finance large foreign currency borrowing coming due this year. Investors will not bring new funds into the country if they don’t believe they will be able to get it back out.Capital controls, if implemented, will not be effective as Turkey needs foreign capital inflows to fund its current account deficit and to re-finance large foreign currency borrowing coming due this year. Investors will not bring new funds into the country if they don’t believe they will be able to get it back out.
Miranda Xafa, a former official at the International Monetary Fund, reckons Turkey could be forced to seek a bailout.Miranda Xafa, a former official at the International Monetary Fund, reckons Turkey could be forced to seek a bailout.
Otherwise, it will struggle to repay debts issued in foreign currencies such as the US dollar, she explains:Otherwise, it will struggle to repay debts issued in foreign currencies such as the US dollar, she explains:
Looks like Turkey is long overdue for an IMF program. The longer it waits, the harder it will get to overcome the crisis and the bigger the cost in terms of lost output, inflation, and financial distress. pic.twitter.com/xjqQRm2cZPLooks like Turkey is long overdue for an IMF program. The longer it waits, the harder it will get to overcome the crisis and the bigger the cost in terms of lost output, inflation, and financial distress. pic.twitter.com/xjqQRm2cZP
Amid fears that the Turkish currency crisis could pull down the eurozone, the German tabloid Bild has analysed the immediate effects it might have on German consumers.Amid fears that the Turkish currency crisis could pull down the eurozone, the German tabloid Bild has analysed the immediate effects it might have on German consumers.
In a rather flippant article, it suggests the price of the popular chocolate spread Nutella should go down (as the hazelnuts in it come from Turkey). Jeans, and other items of clothing which Germany buys en masse from Turkey, should also get cheaper, it adds.In a rather flippant article, it suggests the price of the popular chocolate spread Nutella should go down (as the hazelnuts in it come from Turkey). Jeans, and other items of clothing which Germany buys en masse from Turkey, should also get cheaper, it adds.
But there are risks too. German banks have a €17bn stake in Turkey, the paper points out (paywall). That’s less than other eurozone nations, such as Spain, whose BBVA bank is one of the most exposed to Turkey.But there are risks too. German banks have a €17bn stake in Turkey, the paper points out (paywall). That’s less than other eurozone nations, such as Spain, whose BBVA bank is one of the most exposed to Turkey.
European bank exposure to Turkey, via Credit Suisse: pic.twitter.com/gBYiTZPdSfEuropean bank exposure to Turkey, via Credit Suisse: pic.twitter.com/gBYiTZPdSf
Turkey’s problems have been building for a while, points out Witold Bahrke, senior macro strategist at Nordea Asset Management.Turkey’s problems have been building for a while, points out Witold Bahrke, senior macro strategist at Nordea Asset Management.
Bahrke explains how the strengthening US dollar has made Turkey’s current account deficit (the gap between what it imports and exports) a bigger problem.Bahrke explains how the strengthening US dollar has made Turkey’s current account deficit (the gap between what it imports and exports) a bigger problem.
Turkey is in a genuine currency crisis, with the lira falling 30% over three days. Fundamentally speaking, the reason for the Turkish meltdown is primarily a large current account deficit, which is 6% of GDP, and reliance on outside capital.Turkey is in a genuine currency crisis, with the lira falling 30% over three days. Fundamentally speaking, the reason for the Turkish meltdown is primarily a large current account deficit, which is 6% of GDP, and reliance on outside capital.
Markets do not care if liquidity stays abundant but can turn toxic when global liquidity dries up due to higher interest rates, the Fed’s balance sheet shrinks, and the US dollar strengthens. Making things worse, there are serious doubts about the ability of policymakers to correctly assess what kind of storm is currently brewing and how to deal with it.Markets do not care if liquidity stays abundant but can turn toxic when global liquidity dries up due to higher interest rates, the Fed’s balance sheet shrinks, and the US dollar strengthens. Making things worse, there are serious doubts about the ability of policymakers to correctly assess what kind of storm is currently brewing and how to deal with it.
Adding to the pain, a dispute between Washington and Ankara around the arrest of a US pastor in Turkey has prompted Trump to impose additional tariffs on Turkey this week. Altogether, we have a perfect storm.Adding to the pain, a dispute between Washington and Ankara around the arrest of a US pastor in Turkey has prompted Trump to impose additional tariffs on Turkey this week. Altogether, we have a perfect storm.
Why is Erdoğan so implacably opposed to raising Turkish interest rates, even though inflation has bubbled to dangerous levels?Why is Erdoğan so implacably opposed to raising Turkish interest rates, even though inflation has bubbled to dangerous levels?
In a nutshell, the Turkish leader has an unorthodox view of economics, arguing that higher rates actually create inflation. Back in May, he called interest rates the “mother and father of all evil”. A month earlier, he criticised the Bank of Turkey for defying him and raising borrowing costs, making the markets concerned about central bank independence.In a nutshell, the Turkish leader has an unorthodox view of economics, arguing that higher rates actually create inflation. Back in May, he called interest rates the “mother and father of all evil”. A month earlier, he criticised the Bank of Turkey for defying him and raising borrowing costs, making the markets concerned about central bank independence.
The conventional view, though, is that higher borrowing costs squeeze prices down, as they make credit less affordable.The conventional view, though, is that higher borrowing costs squeeze prices down, as they make credit less affordable.
Russ Mould, investment director at stockbroker AJ Bell, thinks Erdoğan’s views are based on experience of Turkey’s previous financial problemsRuss Mould, investment director at stockbroker AJ Bell, thinks Erdoğan’s views are based on experience of Turkey’s previous financial problems
“The current Turkish situation bears all of the hallmarks of the Asian and Russian economic crises of 1997-98, which finally spilled over into the West and led to a short, sharp bear market in developed market share prices, while Turkey last got into serious trouble in 2000-01 when the lira collapsed.“The current Turkish situation bears all of the hallmarks of the Asian and Russian economic crises of 1997-98, which finally spilled over into the West and led to a short, sharp bear market in developed market share prices, while Turkey last got into serious trouble in 2000-01 when the lira collapsed.
“That crisis followed a period of rip-roaring growth funded by a rising budget deficit and rampant overseas borrowing that left the economy overheating – which all sounds very familiar today, given Turkey’s $200 billion-plus of overseas debt, inflation in the high-teens and a current account deficit that represents nearly 6% of GDP.“That crisis followed a period of rip-roaring growth funded by a rising budget deficit and rampant overseas borrowing that left the economy overheating – which all sounds very familiar today, given Turkey’s $200 billion-plus of overseas debt, inflation in the high-teens and a current account deficit that represents nearly 6% of GDP.
“When the smash came in 2000, the Turkish lira halved in value and GDP plunged while unemployment and inflation soared. This all happened under the supervision of the International Monetary Fund (IMF), which offered more than $20 billion in financial assistance between 1999 and 2003, in return for a package of interest rate hikes and fiscal austerity.“When the smash came in 2000, the Turkish lira halved in value and GDP plunged while unemployment and inflation soared. This all happened under the supervision of the International Monetary Fund (IMF), which offered more than $20 billion in financial assistance between 1999 and 2003, in return for a package of interest rate hikes and fiscal austerity.
“This economic disaster paved the way for the 2002 general election victory of the newly-created Justice and Development (AKP) Party under Recep Tayyip Erdogan, so no investor should be surprised by how Mr Erdogan is now responding.“This economic disaster paved the way for the 2002 general election victory of the newly-created Justice and Development (AKP) Party under Recep Tayyip Erdogan, so no investor should be surprised by how Mr Erdogan is now responding.
“His rise to power was at least partly fuelled by public discontent with the IMF’s version of economic orthodoxy, so it is no wonder he is determined not to follow the path of higher interest rates and lower government spending now.“His rise to power was at least partly fuelled by public discontent with the IMF’s version of economic orthodoxy, so it is no wonder he is determined not to follow the path of higher interest rates and lower government spending now.
“Given that he also called interest rates ‘the mother of all evil’ in a speech last May, raising the question of whether he wanted to pay interest and repay overseas loans, let alone could do so, all it needed was some unexpected development to puncture confidence in Turkish assets and prompt capital flight. After all, ‘capital will always go where it’s welcome and stay where it’s well treated’, as one-time Citigroup chairman Walter Wriston once said, and it may well be that Turkey now no longer fits that bill.“Given that he also called interest rates ‘the mother of all evil’ in a speech last May, raising the question of whether he wanted to pay interest and repay overseas loans, let alone could do so, all it needed was some unexpected development to puncture confidence in Turkish assets and prompt capital flight. After all, ‘capital will always go where it’s welcome and stay where it’s well treated’, as one-time Citigroup chairman Walter Wriston once said, and it may well be that Turkey now no longer fits that bill.