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Turkey’s lira slides as Erdogan attacks central banker
Daniel Dombey in Istanbul and Funja Guler in Ankara
Turkey’s currency hit an all-time low against the dollar on Wednesday following attacks by President Recep Tayyip Erdogan against the country’s central bank governor.
Last week, after intense pressure for lower interest rates from Mr Erdogan, the central bank cut overnight rates by a bigger than expected 50 basis points to 10.75 per cent. But dissatisfied by the size of the cut, in the last week the Turkish leader suggested that Erdem Basci, central bank governor, was under foreign influence, has equated high interest rates with “selling out the homeland” and told the bank not to accede to the wishes of “western powers”.
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Amid questions about whether Mr Erdogan was pursuing a strategy of talking the currency lower, it fell below TL2.57 to the dollar in afternoon trade on Wednesday — more than 1 per cent down on the day and 3 per cent lower than last week. The currency has already lost more than a quarter of its value against the dollar in the past two years.
Even Turks sympathetic to Mr Erdogan’s campaign against high interest rates confess they are bemused by his strategy. “Erdogan is right to ask for a rate cut because petrol prices are falling, but his style is wrong,” said Fatih, a businessman who imports construction equipment. “It is damaging both the country’s image and the economy.”
There are different schools of thought as to the rationale behind Mr Erdogan’s outspoken criticism of the central bank. The president argues — in defiance of economic theory — that high interest rates cause inflation. He also blames high interest rates for stalled levels of private sector investment. Another case for lower rates, made by Nihat Zeybekci, Mr Erdogan’s economy minister, is that a weaker currency helps exports.
“They are basically just desperate about growth,” says Murat Ucer at GlobalSource, a consultancy. “The idea is that a low lira and low rates is the way to bring growth back at a rate that is good enough.”
The problem is a pressing one. Turkey holds a parliamentary election on June 7. When it last went to the polls, in June 2011, it was enjoying its second consecutive year of about 9 per cent growth.
By contrast, many economists expect 2014 growth of about 2.5-3 per cent — well below the 5 per cent or so needed to absorb new entrants into the labour force. Export figures for January and February showed year-on-year declines. Construction — which Mr Erdogan views as the motor of the economy — is slowing more than gross domestic product as a whole. Consumer spending, largely fuelled by a big increase in domestic debt in recent years, is now more constrained.
While a weaker lira may help growth, its tumble is far from cost free. At the end of last year, Turkish corporates’ net foreign exchange liabilities stood at $183bn, compared with $28.5bn in 2006. The central bank argues that much of the debt is long term and effectively hedged, often by foreign currency income, but even so Mr Ucer worries that a tumbling lira will make this debt harder to service and may at least hold back companies’ investment.
He argues that Turkey’s fundamental problem is a lack of progress on structural reform and aversion to orthodox policy, made worse by Mr Erdogan’s attacks on Mr Basci and Ali Babacan, the government’s economic supremo, a childhood friend of the central bank chief. “Basci and Babacan have been a source of relative stability for investors,” Mr Ucer says. “That’s why they are so important.”
- Turkey's elections are in 3 months time, so over 12 weeks time.
The Turkish economy, which the Erdogan regime did a good job with in its first years of power, will not deteriorate dramatically in that period for there to be a major crisis, so Erdogan and his AKP (technically as president he is not supposed to support any party, but like other laws he simply ignores them making Turkey somewhat of a banana republic) will probably win and with a big share of the votes.
He will then go on to making himself a virtual semi-dictator as a "powerful executive president".
- However in the next few years the Turkish economy may undergo severe crisis and if that is so then in the next elections for the parliament or presidency, Erdogan and his AKP would be voted out.
The most important thing for Turks is the economy, if Erdogan screws that up, he's out.
On a personal level, another 4-5 years of Erdogan would not be that bad especially if he does the following:
- Increases the freedom to practise Islam in Turkey. Turkey is a country with a severely Islamophobic middle class and upper middle-class e.g. in some companies you can't fast Ramadan.
- Ends the Ataturk religion, where Ataturk is worshipped as basically a demi-god, where people can be imprisoned for criticizing Ataturk, and where children are brainwashed to revere this alcoholic dictator.
- Ends the suffering of Kurds.
Picture of dictator, Mustafa Kemal "Ataturk" on the left in an Alevi temple in Turkey.
However if he does that within 4-5 years and makes these things irreversible and then goes that would suit someone like me or the many who follow my beliefs and values.
"Neo-Ottomanism" however, besides the Balkans whom the original Ottomanism primarily served (white Balkan Muslims had a privileged position in the Ottoman empire), is unacceptable.
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