Turkey’s economy may be in freefall with soaring inflation, a plunging currency, sliding stocks and a gaping current account deficit, but don’t dare tell the locals that it is president Erdogan’s fault for keeping interest rates low and preventing an even greater crisis: according to Serap, a 23-year-old clerk at a clothes store in central Istanbul, there is only one entity to blame for the precipitous slide in Turkey’s lira currency.
“This crisis is created by America,” she said.
And a crisis it is: prices are soaring as a result of the collapsing currency – which this year has lost more than 35% against the dollar, and has overtaken the Argentine Peso for the worst performing currency of 2018 – with food, rents and fuel prices in Turkey surging, and the country’s pipeline operator raising the price of natural gas for electricity production by 50%.
But when one asks the local population who is responsible for this economic inferno, the answer is surprising.
Serap’s sentiments about the causes of the crisis are shared by many Turks and hint at why support for President Tayyip Erdogan, who after surviving a fake military coup in the summer of 2016, won re-election in June with super-charged presidential powers, looks untouched, at least for now. Erdogan’s loyal supporters see the currency sell-off as a U.S. attempt to undermine their country and president according to Reuters.
That’s also known as the Maduro defense: blame all domestic problems on “shady” foreign actors, usually involving the US. But while the US certainly has its history of intervening in foreign events, this time the crisis is entirely home grown, although predictably, Erdogan would be the last to admit it.
“If they have their dollars, we have our people, our God,” Erdogan said in a speech on Friday morning, casting the lira’s slide as a campaign against the nation.
His comments were all the rage, in some cases literally, across Turkey’s overwhelmingly pro-government media on Friday. Newspapers and TV stations have cast the lira crisis as a political assault, spiraling out of U.S. sanctions imposed on two Turkish ministers last week in a row over the detention of a U.S. evangelical pastor, Andrew Brunson.
“They issued a scandalous decision last week about our ministers,” said Serap, the store clerk. She didn’t know exactly what steps Washington had taken against Turkey, but said her country would not be pushed around. “It’s not so easy to make us bow down to their demands.”
In short, nationalist sentiment has taken over what is otherwise purely economic debate, and explains why a simple resolution to Turkey’s troubles now looks unlikely: after all, for Erdogan to fold and release Pastor Brunson would be seen as an act of weakness in the growing political feud with Trump, a parallel to what is taking place between the US and China, where neither side is close to conceding either.
Meanwhile, the anti-American propaganda campaign is raging to garner even more support for Erdogan’s flawed economic policies: opposition newspaper Sozcu this week showed Brunson, still under house arrest in western Turkey, launching a $100 note folded up as a paper plane.
And flawed they are: not even Erdogan’s son-in-law who was recently appointed as the country’s economy and finance minister, could explain what is going on:
- TURKISH FINANCE MINISTER SAYS THE PROCESS TURKEY IS GOING THROUGH CANNOT BE EXPLAINED WITH LOGIC GIVEN ITS MACROECONOMIC INDICATORS
So, the Turkish economy no longer makes sense, but it’s America’s fault?
In any case, the lira sell-off, driven by fears about Erdogan’s influence over monetary policy and Turkey’s worsening relations with the United States, sent tremors through global emerging markets and dominated international financial headlines. And yet, the Turkish media has mostly ignored the financial aspect of the crisis, aside from covering Erdogan’s comments.
“The newspapers didn’t even report the natural gas and electricity price raises,” said Veysel, an Istanbul taxi driver. He said he learns about the slumping lira and steep fuel price rises when he fills up his tank or quizzes his passengers, rather than from the media.
Meanwhile, as Turkey’s economy keeps digging an ever deeper hole, relations with the US continue to deteriorate, and are about to get even worse as additional measures are expected if the two NATO allies fail to resolve the Brunson dispute, as well as wider differences over issues including U.S. sanctions on Iran and Ankara’s plans to buy a Russian missile defense system.
Just earlier today, Trump poured gasoline ont he fire, giving conspiracy theorists ample ammo to claim that the feud is political when the US president announced that he will double tariffs on steel and aluminum imports from Turkey, as further punishment over the Brunson affair:
I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!
— Donald J. Trump (@realDonaldTrump) August 10, 2018
The news promptly sent the lira to a fresh all time low against the dollar, at 6.8703.
Meanwhile, as the US demands to get the pastor back, Erdogan has chastised the United States for failing to extradite a U.S.-based cleric Ankara blames for a failed 2016 coup, supporting a Kurdish militia in northern Syria which Turkey says is a terrorist organization, and for demanding its allies comply with U.S. sanctions on Iran.
“They are ruling the world on their own,” said Yilmaz Cakarli, a trader in Istanbul. “Somebody must find a solution and say ‘stop’ to the United States.”
Turkey hopes to be that “somebody.” But even so, what then? With inflation at a 14-year high and still rising, the country’s most powerful leader since Ataturk has resisted the orthodox policy response of raising interest rates, which he once described as the “mother and father of all evil”.
And confirming that Erdogan’s executive power creep has now set its sights on the central bank, in July the central bank left its policy rate unchanged, surprising economists who had predicted a significant hike. Since then, the lira has collapsed.
Not everyone is hypnotized by Erdogan’s “mermaid song”, and as Reuters notes, some Turks lay blame closer to home.
“They are taking all of us to the cliff-edge,” said a 35-year-teacher, buying a phone charger in an Istanbul mall. She declined to be named for fear of being seen to criticize a president who brooks little dissent.
Opinions such as that one, however, are few and far between. Meanwhile, Erdogan’s supporters see less cause for alarm.
“The government knows what it’s doing – the crisis rumors are creating false panic,” said Ahmet, a 30-year-old selling newspapers and cigarettes at a kiosk in Istanbul, who is about to get the surprise of his life.
“I think it’s good the newspapers aren’t making a big deal out of this. What good would it serve other than creating more panic? The government will do something when it’s necessary.”
Well, Ahmet, we hate to break it to you, but it’s necessary.
Levent, who owns a shop selling mobile phone accessories, said Turkey’s standing in the world was more important than the lira, and fears of a currency collapse were overblown.
“The dollar has gone beyond 5 (lira), yes. But we didn’t vote for the dollar, we voted for a strong Turkey,” he said, referring to Erdogan’s June election victory. “Look – everyone has cars, there’s busy 24-hour traffic in this city. Does this look like a city in crisis?”
We’ll check back in 6 months.
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Author: Tyler Durden