[ad_1]
Turkey is living beyond its means. Erdogan is clearly planning financial and political change and legal reforms, Deutsche Welle said. But can he be trusted? Will you prescribe a “bitter medicine” to Turkey? The Frankfurter Allgemeine Zeitung is looking for answers.
Turkish President Erdogan’s decisions are often unpredictable, as they were last week. But this time the surprise was not in the field of foreign policy, it was related to the financial and monetary policy of the country. The governor of the Central Bank was suddenly fired. Hours later, the Minister of Finance, Berat Albayrak, Erdogan’s son-in-law, resigned. And this sheds some light on what is happening in Ankara: as soon as he does it with his relatives, Erdogan is clearly planning financial and political change, complemented by legal reforms. So far all is going well, but his claims that he is willing to prescribe a “bitter medicine” can be believed, asks the “Frankfurter Allgemeine Zeitung”.
High interest rates are not a panacea
Financial markets view Erdogan’s plans as a willingness to allow higher interest rates, the exact opposite of what the president has been preaching so far. In accordance with Erdogan’s instructions, the newly appointed head of the Central Bank 16 months ago lowered the key interest rate from 24% to 8.25%, as a result of which the crisis intensified. Earlier this month, Erdogan still claimed that the country was in an “economic war” and spoke of a “devil’s triangle” of interest rates, exchange rates and inflation. He has repeatedly said that there were speculators who wanted to bring Turkey to its knees. And it is them that Erdogan wants to oppose now, says the FAC.
The publication recalls that this year the Turkish lira lost a third of its value against the euro and the dollar. And its surprising recovery of more than 10% in recent days is related to the expectations of the departure of the new Finance Minister Lufti Elvan, as well as the new head of the Central Bank Naji Agbal.
A bank meeting will be held on Thursday, November 19. Analysts expect top interest rates to rise as much as six percent. However, high interest rates are not a panacea, emphasizes the FAC and recalls that the largest economic nation in the Middle East suffers from rising unemployment, double-digit inflation, balance of payments deficit. The State and companies have significant debts in foreign currency and their income is in pounds. In other words, as the value of the pound falls, the size of your debts increases. At the same time, public trust in government is declining: people are investing their money in stocks and gold. Many also invest in real estate, thanks to low-interest loans. According to rating agencies, most loans are bad. And this is a source of doubts about the stability of the state banks.
Can Edrogan save Turkey?
Turkey is living beyond its means, the FAC said, explaining that without low international interest rates, it probably would have already collapsed. Added to this is the collapse of tourism due to the coronavirus. However, it is not the pandemic that is the cause of Turkey’s difficult situation, but the poor development of the pound. Overcoming the crisis requires not only high and sustained interest rates, but also stable and secure institutions, as well as clear and well-founded rules on monetary and financial policy. Is Erdogan ready for that?
According to the Turkish president, quoted by Handelsblatt, the new finance minister and the new head of banking will implement “transparent and predictable” measures to reduce inflation. “In this sense, I would like to emphasize that I will support you at every step,” the president told the main legislators of his Justice and Development Party.
[ad_2]
