Turkey’s Lira Crisis Tests Erdogan’s Authoritarian Approach
nytimes.com
nytimes.com
This is the physical world equivalent of believing gravity makes things rise. Or that water pouring in makes a ship float, not sink.
It will be very, very difficult for Turkey unless someone can convince him he is wrong. And he has created a system where no one can tell him that.
Edit: I seem to be getting downvotes. But this actually is his repeatedly stated belief. You can find dozens of similar references.
https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s...
Is there evidence he actually believes this?
I guess he could be lying, but it has certainly rattled the markets.
https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s...
here is a turkish source (not even an opposition one): https://www.haberturk.com/erdogan-faiz-ne-kadar-dusuk-olursa...
just google "faiz enflasyon erdogan" (Which means interest rate, inflation, erdogan in turkish) and be amazed how many different instances he said it, and his ministers confirming his views.
I mean, take Trump: he's a raging ball of id who just yells whatever pops into his head at random and agrees with whoever spoke to him last. What he "actually believes" is probably, to use programming jargon, undefined.
My assumption was that he's keeping rates low to avoid raising interest costs for his government and cronies. But it might be that he actually just misunderstands economics and everyone is too scared to tell him so.
I don't think he does.
Proof: https://tradingeconomics.com/turkey/interest-rate He hiked interest rates by 10%. Making the central bank rate around 18%. You'll pay 22-25% to borrow in Turkey. That's an insane rate. At which most businesses will simply collapse.
How much should he raise the interest rates? To 100%? I don't think that will work either.
Interest rates hike do cause short-term inflation. Long-term, they'll just bankrupt businesses. And no, I'm not a genius. I don't have a solution to this vicious circle the economy has entered. It looks like it is about to wind down either ways with lots of damages.
Do you care to expand? This is the first time I'm hearing somebody say this. I've always believed it is exactly opposite; raising interest rates motivates people to save more and borrow/ spend less: because people are spending less there is less demand and so it removes the upward pressure on prices.
https://www.bloomberg.com/news/articles/2018-07-10/erdogan-g...
The rest of what you wrote runs contrary to real world economics.
To clarify: Islamic perspective on interest rates is that it is sinful (actually, giving credit is what is presented as sinful, but meanings are lost in translation)
However, the Quran doesn't present a perspective on whether interest rates can be used as a leverage against high inflation rates. I guess they were too busy trying to calculate how many male witnesses are the equivalent of female witnesses.
You can sell items by installment directly, but you must be the direct seller and the buyer actually pay to you, not to the bank who covers the buyer money and paid it to you.
Theres a lot of verse in the Quran that explain about how to trade, loan, etc.
It predates Abrahamic religions. Even Aristotle complained about lending and interests as being "unnatural".
But then again, Jews became the bankers of Europe because Christians at the time were against it as well.
Jews actually had few other job options left to them. Antisemitism was really really widespread throughout entire Europe.
No, it isn't. At least it's not as clear cut as you want to make it look like with the hyperbole.
Higher interest rates have both deflationary and inflationary effects. The mainstream only acknowledges the short or medium term effect on borrowing and consumer spending. But interest rates are just another price of the economy. Higher interest rates also means higher costs for businesses. And they add to the government deficit, which is also inflationary.
Maybe Erdogan is looking at Argentina, where the current interest rate is above 45% and whatever anti-inflationary effect it could have had has long ago dissapeared.
Higher interest rates by definition reduce the rate of money in circulation by encouraging saving over spending (higher cost to borrow money). Maybe in your mind that leads to deflation, but empirically it doesn’t.
I'm not saying I believe higher interests causes inflation, but I believe your logic is flawed.
Argentina’s currency jumped after that interest rate hike, btw, and the inflation rate for 2018 has been lower than that of 2017.
https://www.statista.com/statistics/316750/inflation-rate-in...
The inflation in 2017 was 25%. With a lot of luck in 2018 will be < 32%.
>Those would include allowing a free press, an independent judiciary and returning powers to Parliament
Not that it wouldn't be nice to see those reforms, but it seems like they just slipped that claim in without much justification. China does fine with an autocratic system, as do others. I'm just puzzled that this wishful thinking that economic prosperity is necessarily connected to political freedoms still persists. Would be nice it if were true, but doesn't seem so.
China is doing well for now. In the long term it's going to suffer because the free flow of ideas is suppressed. And without that there's a double whammy of no innovation and learned helplessness.
Most formerly communist countries suffer from this to an extent.
That's because it's true in ~188 out of 190 on-going instances where oil isn't involved. It's fair to say it's true 99% of the time.
US, Canada, Sweden, Finland, Denmark, Ireland, Britain, France, Germany, Italy, Spain, Japan, South Korea, Australia, New Zealand, Switzerland, Netherlands, Austria, Belgium, Israel (this list keeps going)
Versus what?
China... and? Maybe Singapore, a tiny island nation.
Denmark has nearly three times the GDP per capita of Saudi Arabia. Czech has four times the GDP per capita of Iran. That isn't going to change, if anything the disparity will increase between the liberal order and the authoritarian order. China is more of a historical one-off than anything.
The US has at least 10x the GDP per capita of Cuba, and six times that of Russia. South Korea has ~15 times the GDP per capita of North Korea. Australia has 40 times the GDP per capita of Myanmar.
The economic prosperity rankings are overwhelmingly dominated by nations that are more politically free than not. The least politically free nations tend to be hyper impoverished (again, with only a few exceptions for petro states). As such it's not wishful thinking, it's reality.
South Korea is an interesting case: it used to have a worse economy than NK, started rapid economic expansion while under a corrupt dictator, suffered through another, and could not really be called a "democratic" country until 90s. So maybe prosperity eventually causes democracy, but it's a slow process.
I'd add to this the exploitation of resources throughout the world
China balanced autocracy and stability. Xi has undone China’s term limit requirements, however, which makes me less optimistic going forward.
1995 – 1 U.S. dollar = 45,000 first Turkish lira
2001 – 1 U.S. dollar = 1,650,000 first Turkish lira
See https://en.wikipedia.org/wiki/Turkish_lira#First_Turkish_lir...
1. https://www.bloomberg.com/view/articles/2018-08-14/erdogan-i...
Russia is a bad, bad partner. They have no money (compared to the West) and really no tech. They have cool weapons and oil though but are unreliable there too...
Is Erdogan the owner of Turkey or are Turks the owners of Turkey? Are Kurds the owners of Kurdistan or are YPG or Assad or Daesh or Erdogan the owners of Kurdistan?
Turkey elected a strongman. He used the state to buttress his own power. That made necessary, but politically-difficult decisions (like raising interest rates), impossible.
> Turkey has external debt but so on the US
Few Americans borrow in non-U.S. dollars. And the U.S. government only borrows in U.S. dollars. This works because the dollar works. Investors and exporters trust it to retain value.
The lira, on the other hand, isn't trusted. So when the Turkish government wants to borrow money, investors aren't willing to accept being paid back in lira. (And the government, in any case, needs hard currency to pay for imports. Because the people selling Turkey imports don't want to be paid in lira, either.)
This is interesting. But, the world is not all about US. My question is, can Trump do same with some European country?
Why did not previous Presidents think of it and opted for traditional war? This trade war is more safer for Americans.
>why didn't previous presidents think of it
They probably did, but were likely smart enough to figure out that a trade war with the world will trigger a backlash that the US won't be able to handle. The world will seek an alternative to the US dollar, and I think it will happen very soon if Trump continues doing what he does.
US Chamber of Commerce after Turkey imposition of the tariff on US goods.
https://www.cnbc.com/video/2018/07/03/us-chamber-of-commerce...
Trump didn’t cause Turkey’s problems. Decades of debt-driven growth, an imbalanced reliance on exports and incompetent administration (in defending property rights and monetary policy) caused this. Investors aren’t dumping Turkish assets because the U.S. levied light sanctions. They’re selling because Erdogan installed an incompetent son-in-law as central banker.
Erdogan travels a well-worn path. Most dictators don’t leave office peacefully. They die horribly or die in power. Their nation’s economies therefore transform into a mechanism for preserving their power. Longer-term and broader concerns, in turn, atrophy.
Initially. Now he’s making his own. The present policy of printing money to buy currency with which to pay debts is unsustainable. Putting family and cronies in positions that are meant to be independent makes people sell.
But yes, the US is in a very strong position vis a vis almost every other nation in the world. Trade wars in general are not good economic policy, but the truth is that they will generally hurt the counter-party more than they hurt the US .
I was reading that a lot of corporate debt is in USD /EURO. So the loans are a lot more expensive now and many will go kaput. https://www.ft.com/content/0661a1b0-9f08-11e8-85da-eeb7a9ce3...
"Last month Turk Telekom, a big telecoms group, announced a second-quarter loss of almost a billion lira as it was hit by a surge in the cost of financing foreign-currency debt.
And, then, in the space of a week, the lira lost a fifth of its value against the US dollar, as Turkey entered a full-blown currency crisis.
The slide has sorely hurt businesses that for years took advantage of longer maturities and lower interest rates to borrow in euros and dollars rather than Turkish lira."
The volumes of debt are also very different. Greece had a LOT more debt when they defaulted.
6.8 try/usd is not crazy. The previous exchange rate probably was.
I think that Turkey's slide in to authoritarianism can be directly traced to the US' Kissinger-esque approach to diplomacy, particularly in the Middle East. I'm not saying the alternative would have been better everywhere, or even in Turkey. But... still.
There is simply no relationship between American friendship and liberalism, rule of law, protection of minorities or any other "moral" standard. The US will not downgrade it's relationship or do anything, in response to stealing an election, commiting a political purge, etc.
Turkey has never been a fully liberal democracy, with basic freedoms held to a basic democratic standard. Ironically though, at the beginning of erdogan's premiership it was pretty close, closer than it had been certainly.
As it gradually slipped into its current state, there were no consequences... not even a scholding.
Oddly, Trump's wildman diplomatic tactics that constantly and hyperbolically upgrades and degrades the US' "friendship status" other states... the inconsistency allows for flexibility.
I doubt much liberalism will result directly from Trump (it's just not something he seems to care for) but the re-write get of the rules... That will probably be permanent. It may allow the US out of its fairly constrained diplomatic policies, which (I now believe) are far too consistency and convention oriented.
Tldr... If the US had started reacting sharply when Erdogan started jailing journalists, rivals and activists....Turkey might still be a free country.
In any case, the US did make (also in Iraq) an enormous concession to Turkey. Iraqi Kurdistan was not allowed to declare independence, despite clearly needing it and being an extremely loyal, reliable and effective US ally, something that cannot be said of any others in the ME lately. Syrian Kurdistan had to basically surrender to Assad to avoid a Turkish Attack. Again, the US totally had-faced a genuine, ideological ally... as a favor to Turkey.
These have been Turkey's primary concerns in those wars, and they got what they wanted.
My point is that they shouldn't have. The US is a powerful country. They were in a position to make these decisions ideologically, rather than transactionally.
I think Turkey's NATO membership should have come into question, when Erdogan clearly stepped back from "free/democratic."
That's interesting, what's your source for that?
edit: typo
At the start of his reign he was negotiating for EU membership, and topics like that were firmly on the table. In fact he absorbed all sorts of slights and insults before finally giving up. Some of those were genuine slights, double standard requirements that were not being asked of christian majority countries.
This incident though, it really reflects a certain diplomatic norm, a quid quo pro, transnational diplomacy.
I know the "Pastor Affair" is largely just an excuse or trigger for this argument. But, he was arrested and trialed kangaroo style, as were thousands of people picked up during the last major purge. The US asked to have their (almost certainly falsely convicted) citizen back. Turkey treated this as a good opportunity for a quid quo pro transaction.
You want this priest back. We want things too. How about you extradite some dissidents. We'll release you innocent priest.
That transnational norm is... normal. IE, the US deals this way in the middle east. I realize diplomacy will always have very big realpolitik aspects to it. I realize that moralizing and such are no basis for diplomatic relations. But, if you stop even paying lip service to the idea of values, morals and such.... I think you lose out of that too.
Taking on debt in your currency means you won't be able to access international markets, and international market are not just going to allow you to sell bonds in your currency without an extremely steep interest payment, some players won't even invest due to the enormous risk they would be taking.
Your point 3,4 makes it seem you are unaware of how money or wealth works - would you like it if every three years the govt just striped you of your ownership of your house ? All debt is someone else's saving, introducing a ”sabbat year” on the debt side also reflects on the ownership side - it would not be possible to own anything long term.
Your point 4 would mean companies like Amazon, FB, Google would literally be impossible to create. Its very hard to distinguish between good and bad debt ( its the reason analysts are paid so well ).
I agree with your last two points.
That means that the borrower would control how much he owed, as governments of nations with their own national currency are able to devalue their currency.
Understandingly, potential lenders do frown upon that possibility.
Similarly, lenders don't accept judicial arbitration in the jurisdiction that the lender controls.
Anyways, I have the feeling Erdogan thinks that the whole “economy thing” is at most complicated not complex and treats it like that. Good luck with that approach.
The link has worthwhile content, and was entertaining. Thanks!