Martin Wolf: why Erdogan in Turkey has not calmed the markets

Martin Wolf: why Erdogan in Turkey has not calmed the markets
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    His decision, obviously quite reluctantly,
    given his well-known views on interest rates,
    to permit an increase of 300 basis points
    in an important central bank rate,
    showed a real sense of panic.
    The lira was collapsing.
    And very temporarily this reversed it,
    but then it started to slide again.
    And the rate has stabilised again,
    but it's still well, well down.
    So it's indicates that the Turkish government is beginning
    to get really nervous, but it also
    indicates that they have not yet reversed the negative sentiment
    about Turkey, the sense that inflation is really
    out of control, that the central bank has effectively
    lost its independence.
    So there's recent mutterings from senior members
    of the government that, really, it is independent,
    but nobody really believes it.
    Turkey has a huge current account deficit,
    very highly indebted corporate sector
    with large dollar liabilities or foreign currency liabilities.
    And, of course, a weakening exchange rate
    makes all that much worse.
    So there's obviously remains a lot of negative sentiment
    in the market.
    And President Erdogan has responded to the crisis.
    But I think it's very unlikely to be
    enough to reverse sentiment in a world in which, really, a lot
    of investors are losing confidence
    in what's going on in Turkey.
    He's obviously playing, as it were, for time so that he
    can get through the presidential and parliamentary elections.
    He's called for the 24th of June.
    He wants to gain power and would be pretty well absolute,
    but that's not going to be enough.
    That's not going to calm the markets.
    They can't be intimidated as domestic opponents can.
    So he's going to have to prove, I think, to the markets
    that he's going to have a properly, professionally run
    administration that can pursue sound fiscal policy.
    They're going to try and reduce the current account deficit.
    Fiscal tightening will be necessary,
    that the central bank will be given genuine independence,
    that the bullying and intimidation
    of the private sector will cease,
    and that the market economy will be allowed
    to operate in a proper rules-governed, law-governed
    And I think the belief of many outside
    is, here where politics and economics converge,
    that an increasingly arbitrary rule of one person
    would completely dominate the government is just
    not the sort of government that will provide these things.
    But that's what he's got to prove.
    He's got to prove, in other words,
    that he can run Turkey in a proper manner.
    And he's lost the confidence of many in his ability
    and willingness to do so.
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