We have taken much time to confront the murderous genocidal Han Chinese Rats - they leave German Nazis in the dust! - recently. But we ought not to forget the Turkey of Recep Erdogan. This is yet another illustration of the reality that if you wish to destroy a totalitarian regime, first you have to bring "its people" to their knees! - Which is what is happening in the miserable "Sultanate" (hahaha! like the Han Chinese miserably poor "Celestial Empire"!) of Muslim Turkey! Enjoy this story today in The New York Times - which is not to say that we don't feel sorry for that half of Turkey that is slowly coming to see that Recep Erdogan was always A RECIPE FOR DISASTER!
ISTANBUL
— Even before the Turkish authorities took the extraordinary step of undoing an opposition victory and
calling a new election for mayor of Istanbul, the government had spent billions
to prop up the country’s flagging currency over the last year and bolster its
candidates.
But
since last week, as the political turmoil rattles investors, it is spending
sometimes a billion a day, even on the sly, to support the currency, the lira,
as well as the waning aura of invincibility around President Recep Tayyip
Erdogan.
Mr.
Erdogan, 18 years in power, was re-elected last year for a new five-year term
to a presidency with vastly expanded powers. He has already
trimmed civil liberties, purged and jailed political opponentsafter a failed
2016 coup, and brought a free press to heel.
Increasingly, the
president has also taken over management — critics say, mismanagement — of the
economy to sustain the nearly unbroken growth that has brought him a loyal
following.
For
many Turks and foreign investors, the spending to prop up the lira is the
latest example of Mr. Erdogan placing his political and personal fortunes ahead
of those of his country, this time to regain control of Istanbul, the most important base of his power and prestige.
Even if
the government can stave off an economic crisis before the new election,
scheduled for June 23, many fear that the profligate spending will increase the
likelihood of a collapse that could ripple well beyond Turkey. European banks
own billions in Turkish debt.
Last
year, the lira lost 30 percent of its value, and it is down 14 percent so far
this year.
The loss of the March 31 mayoral election in Istanbul was
the most significant sign that support for Mr. Erdogan’s Justice and
Development Party, or A.K.P., has become vulnerable as the economy has
weakened.
Even before the loss, Mr.
Erdogan had used the government budget, the central bank and government-controlled
banks to defend the currency, forestall a credit crunch, and even to pay
for stands selling subsidized vegetables in the hopes
of keeping voters on his side.
But the economic duct
tape that the government has used to maintain the support of working-class
voters is beginning to come undone, economists say. It looks increasingly
unlikely to hold until June 23.
The
decision to nullify the Istanbul election — made by a body beholden to Mr.
Erdogan, which found that some election officials had been appointed illegally
— may ultimately backfire on the president by adding to the economic distress
that caused him to lose Istanbul in the first place, analysts say.
“They
voted because the economy sucks,” said Atilla Yesilada, an Istanbul-based
consultant at Global Source Partners, referring to Turks who switched to the
opposition. “And now it sucks even more.”
Among
the small businesses that underpin the economy, desperation is already
palpable.
Yasin
Sahinoglu, who owns two shoe stores in Istanbul’s affluent Etiler and Nisantasi
neighborhoods, said that sales had shrunk by half in the days after the
election results were thrown out.
That
was on top of a 60 percent decline in the previous year, he added. “Everyone is
concerned about the future so they prefer to keep the money in their pockets,”
Mr. Sahinoglu said.
Durmus
Yilmaz, former governor of Turkey’s central bank and co-founder of the
opposition IYI Party, said it had been at least 20 years since officials had
made a similar attempt to prop up the lira — and it had backfired then.
“Turkey
has mortgaged its future,” said Mr. Yilmaz, who spent 32 years at the central
bank.
The central bank’s net
reserves have been declining since September as the government has sought to
bolster the lira. Foreign currency reserves were $74 billion at the end of
March, a decline of 5 percent from February, according to central bank figures.
“It seems questionable whether Turkey’s war
chest of foreign reserves is strong enough to withstand anything that even
vaguely resembles a currency attack,” Bart Hordijk, a market analyst at Monex
Europe, a currency trading firm, said in a note to clients last week.
Importantly,
since March, analysts say they have found discrepancies in the central bank’s
figures on the state of the national reserves, according to Selva Demiralp, an
economics professor at Koc University in Istanbul.
Some
analysts suspect that the government is discreetly transferring funds to public
banks, which are then selling dollars to prop up the lira.
Ugur
Gurses, an economic analyst who worked at the central bank in the 1990s,
described the government’s action as a “backdoor policy.”
Professor
Demiralp said it was unprecedented for the government to hide its actions in
this way. The director of the central bank had been asked to explain at a news
briefing on April 30, she said, but he could not.
“They
want to create the impression that the lira is strong enough,” Professor
Demiralp said.
If the central bank runs
low on dollars and can no longer prop up the lira on financial markets,
Turkey’s economy could face a real collapse.
Oxford
Economics, a consultancy in London, ranks Turkey just behind Argentina among
countries most likely to suffer a currency crisis.
In a
statement on April 30, the central bank said the decline in stocks of foreign
currency was temporary, and that the reserves would recover as a cheaper lira
made vacations in Turkey and Turkish exports more appealing.
In response to written
questions on Tuesday, the central bank showed no signs of backing down from its
spending to support the currency.
“The Central Bank will go on using all the
means in its hands for the aim of price stability,” the statement said.
It also
promised that inflation would fall to 5.4 percent at the end of 2021 from
almost 20 percent now.
Yet some signs of
economic collapse are already manifest, including rising unemployment, a surge
in bad loans and corporate bankruptcies. Perhaps most important is the
collapsing confidence of foreign investors, evident in the plunge in the lira.
The
China-like growth rates that Mr. Erdogan has delivered until recently would not
have been possible without the money from investors attracted by Turkey’s high
interest rates.
The
sagging lira is a sign that foreign investors are turning away. The impact is
felt acutely among Turkish businesses and banks whose debts are valued in
dollars, and therefore become harder to pay as the lira falls.
Turkish
banks need to roll over as much as $45 billion in loans that must be paid in
dollars, Fitch Ratings estimates.
Yet Mr.
Erdogan has been seemingly unfazed by the signs of weakness. He was back out
campaigning last weekend, riding a vintage red tram along Istanbul’s busiest
shopping street and shaking hands with supporters.
It was an unusually
low-key approach for the veteran politician, mingling with the people with
minimum security, which may have been borrowed from the opposition candidate,
Ekrem Imamoglu, who won the most votes in the March election with
an all-embracing, grass-roots appeal.
Yet Mr. Erdogan,
determined to retain Istanbul under his party’s control, does not otherwise
seem ready for change.
Last
week Mr. Erdogan promised structural economic reforms, but he has made such
promises before. Economists say that his government is tinkering with the
symptoms and not addressing the underlying problems.
Those
include an overreliance on foreign credit, and too much money spent on construction projects and not
enough on schools and universities to produce a more skilled
work force.
Even
disaffected members of Mr. Erdogan’s party say that the president has moved
away from the sound economic management of his early period in government.
“Confidence
in the data released in decisions related to the economy is an absolute must,”
Ahmet Davutoglu, a former prime minister who was once a close ally of Mr.
Erdogan, wrote recently. “Unfortunately, certain recent practices have shaken
that confidence.”
Business
groups have also become more openly critical.
“We are
asking for tighter monetary policy, tighter budgetary policy, a coherent
anti-inflation policy,” Bahadir Kaleagasi, the secretary general of Tusiad,
Turkey’s leading business association, said in an interview.
As
important, he added, were reforms to the rule of law and better relations with
Europe. Yet many fear that true change is unlikely as Mr. Erdogan casts out as
much economic line as possible to reel in voters in Istanbul.
Just how long the economy
will hold together, and what would happen if and when it sours, have now become
the most urgent questions before the country.
Mr.
Erdogan still controls a formidable patronage machine, and his base of support
has endured economic turmoil before.
“Regimes
and central banks can always manage a little bit longer,” said Charles
Robertson, global chief economist at Renaissance Capital, an investment bank
that focuses on emerging markets.
But Mr. Erdogan “is
trying to have politics keep primacy over economics and his scope to do that is
getting weaker by the day,” Mr. Robertson said. “Those bills still come due.”
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