[ad_1]
Friday, November 20, 2020, 00:02
The Turkish economy in no way outperformed risk overnight just because the central bank raised interest rates to 15%, says Desmond Lachmann, a former IMF executive and current associate of Liberal.gr. from the American Enterprise Institute.
Commenting on the 180 degree turn that Recep Tayyip Erdogan appears to be making in terms of economic policy, Mr. Lachman estimates that the course of the Turkish pound from now on will depend on whether the Turkish president will actually turn around and support his finance. team, but also how aggressive it will be in foreign policy.
He notes that it is clear that Erdogan has a credibility problem in the markets and will have to do much more to convince himself that he wants to implement orthodox policies. However, Mr. Lachmann does not believe that Erdogan’s change of direction (changes in the central bank and the finance ministry, increases in interest rates) is linked to the outcome of the US elections.
Interview with Konstantinos Mariolis
– The Central Bank of Turkey raised interest rates to 15%. What is your opinion on this move, given that Erdogan continues to reject the application of higher interest rates as a means to combat inflation?
Today’s decision to raise interest rates was a bold move and may indicate a real 180 degree turn in Turkey’s economic policy. The move, along with Erdogan’s changes at both the central bank and the finance ministry, indicates that the Turkish president has finally realized how dangerous it is to let the Turkish currency spiral out of control. While it is highly likely that further interest rate hikes will be needed, especially in the event of rising inflation, this interest rate decision is a very good start and largely in line with what the markets expected.
.png)
– After this development, has the Turkish economy overcome the risk? I ask this because the last time we received your opinions, you said that the crisis in Turkey had already started …
Turkey is far from being able to say that it has overcome the danger. He continues to face a very difficult economic situation while it remains to be seen whether Erdogan will follow this path that he appears to have chosen by raising interest rates. A real challenge for Turkey will now be managing the less favorable international environment as the economies of Europe and the US are hit by the new wave of the pandemic.
– Erdogan did something similar in 2018. Usually, he promotes unorthodox policies to the point where he thinks he can bear it and then abruptly changes direction. Is this a viable strategy to attract investors?
It is clear that Erdogan faces a market credibility problem that will have to be managed in some way, given his misguided approach to economic policy and his frequent statements in favor of low interest rates. You will have to fully support your new financial group if you want to reestablish market support in this recent reversal.
– Do you think the 180 degree turn has something to do with Biden’s victory? Could it be a coincidence that the changes in the central bank and the Treasury Department took place immediately after the result of the US elections?
I don’t believe such a thing. I think what led Erdogan to make a 180 degree turn was the fact that the Turkish lira against the dollar was well above the 8 pound / dollar level and seemed to be falling freely.
.png)
– Another interesting fact is that Erdogan gave the keys to the economy to the central banker and not to the Minister of Finance. Why did this happened?
Suffice it to say that the changes Erdogan made to his partners were made to regain the market’s confidence that economic policy would be implemented in a more orthodox way.
– Some analysts (for example, Goldman Sachs) continue to forecast that the Turkish pound will continue to fall in the coming years, because Erdogan’s main priority is to achieve high growth rates at all costs and not to address macroeconomic imbalances. What you think?
No, I’m not agree. I don’t think it is “predetermined” in a way that the pound will fall next year. The big changes in the exchange rate during this year have caused a devaluation of the currency. It all depends on whether Erdogan will now support his economic group and realize that Turkey cannot show long-term growth in an environment of destabilization in financial markets and the currency market. If you follow an orthodox line and are less aggressive in your foreign policy, the pound can appreciate. If not, the pound will find itself again under suffocating pressure.
* Desmond Lachmann is a former IMF executive and current fellow of the American Enterprise Institute.
