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The Turkish Emerging Market Timebomb

Turkish President Recep Tayyip Erdoğan’s populist economic policies have finally caught up to him.

The Duran

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Authored by Jim O’Neill, originally on Project Syndicate:


As the Turkish lira continues to depreciate against the dollar, fears of a classic emerging-market crisis have come to the fore. Turkish President Recep Tayyip Erdoğan’s populist economic policies have finally caught up to him, and sooner or later, he will have to make nice with his country’s traditional Western allies.

Turkey’s falling currency and deteriorating financial conditions lend credence, at least for some people, to the notion that “a crisis is a terrible thing to waste.” I suspect that many Western policymakers, in particular, are not entirely unhappy about Turkey’s plight.

To veteran economic observers, Turkey’s troubles are almost a textbook case of an emerging-market flop. It is August, after all, and back in the 1990s, one could barely go a single year without some kind of financial crisis striking in the dog days of summer.

But more to the point, Turkey has a large, persistent current-account deficit, and a belligerent leader who does not realize – or refuses to acknowledge – that his populist economic policies are unsustainable. Moreover, Turkey has become increasingly dependent on overseas investors (and probably some wealthy domestic investors, too).

Given these slowly gestating factors, markets have long assumed that Turkey was headed for a currency crisis. In fact, such worries were widespread as far back as the fall of 2013, when I was in Istanbul interviewing business and financial leaders for a BBC Radio series on emerging economies. At that time, markets were beginning to fear that monetary-policy normalization and an end to quantitative easing in the United States would have dire consequences globally. The Turkish lira has been flirting with disaster ever since.

Now that the crisis has finally come to pass, it is Turkey’s population that will bear the brunt of it. The country must drastically tighten its domestic monetary policy, curtail foreign borrowing, and prepare for the likelihood of a full-blown economic recession, during which time domestic saving will slowly have to be rebuilt.

Turkish President Recep Tayyip Erdoğan’s leadership will both complicate matters and give Turkey some leverage. Erdoğan has  constitutional powers, reducing those of the parliament, and undercutting the independence of monetary and fiscal policymaking. And to top it off, he seems to be reveling in an escalating feud with US President Donald Trump’s administration over Turkey’s imprisonment of an American pastor and purchase of a Russian S-400 missile-defense system.

This is a dangerous brew for the leader of an emerging economy to imbibe, particularly when the United States itself has embarked on a Ronald Reagan-style fiscal expansion that has pushed the US Federal Reserve to raise interest rates faster than it would have otherwise. Given the unlikelihood of some external source of funding emerging, Erdoğan will eventually have to back down on some of his unorthodox policies. My guess is that we’ll see a return to a more conventional monetary policy, and possibly a new fiscal-policy framework.

As for Turkey’s leverage in the current crisis, it is worth remembering that the country has a large and youthful population, and thus the potential to grow into a much larger economy in the future. It also enjoys a privileged geographic position at the crossroads of Europe, the Middle East, and Central Asia, which means that many major players have a stake in ensuring its stability. Indeed, many Europeans still hold out hope that Turkey will embrace Western-style capitalism, despite the damage that Erdoğan has done to the country’s European Union accession bid.

Among the regional powers, Russia is sometimes mentioned as a potential savior for Turkey. There is no doubt that Russian President Vladimir Putin would love to use Turkey’s crisis to pull it even further away from its NATO allies. But Erdoğan and his advisers would be deeply mistaken to think that Russia can fill Turkey’s financial void. A Kremlin intervention would do little for Turkey, and would likely exacerbate Russia’s own .

The other two potential patrons are Qatar and, of course, China. But while Qatar, one of Turkey’s closest Gulf allies, could provide financial aid, it does not ultimately have the wherewithal to pull Turkey out of its crisis singlehandedly.

As for China, though it will not want to waste the opportunity to increase its influence vis-à-vis Turkey, it is not the country’s style to step into such a volatile situation, much less assume responsibility for solving the problem. The more likely outcome – as we are seeing in Greece – is that China will unleash its companies to pursue investment opportunities after the dust settles.

That means that Turkey’s economic salvation lies with its conventional Western allies: the US and the EU (particularly France and Germany). On August 13, a White House spokesperson confirmed that the Trump administration is watching the financial-market response to Turkey’s crisis “very closely.” The last thing that Trump wants is a crumbling world economy and a massive dollar rally, which could derail his domestic economic ambitions. So a classic Trump “trade” is probably there for Erdoğan, if he is willing to come to the negotiating table.

Likewise, some of Europe’s biggest and most fragile banks have significant exposure to Turkey. Combine that with the ongoing political crisis over migration, and you have a recipe for deeper destabilization within the EU. I, for one, cannot imagine that European leaders will sit by and do nothing while Turkey implodes on their border.

Despite his escalating rhetoric, Erdoğan may soon find that he has little choice but to abandon his isolationist and antagonistic policies of the last few years. If he does, many investors may look back next year and wish that they had snapped up a few lira when they had the chance.

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VeeNarian (Yerevan)CheviHelga FellayAM HantsMarc Landreville Recent comment authors
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VeeNarian (Yerevan)
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VeeNarian (Yerevan)

This is a very limited and blinkered analysis. Listen to Erdogan: Turkey does have other partners. Then the US/EU/NATO gangsters will be well and truly stuffed.

Chevi
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Chevi

who the heck is this guy Jim ???????? the EU is bankrupt………usa is kaput………. end of story……..

Helga Fellay
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Helga Fellay

This author seems utterly clueless. Turkey has – finally – realized that its future lies with the new alliances that are gaining power as the old order, the western alliance, is going down fast. Quatar has already offered a bailout, and while the transition period is painful, Turkey will rise again, without the help of that sinking ship, the EU, which will go down alongside its master, the USA.

AM Hants
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AM Hants

Sorry, this is off topic, but, might be of interest.

BREAKING: Ukrainian Army & Blackwater Prepare Use Of Radiation Weapon On Donbass (DOCUMENTS, MAP)
Major development, Cyber-Berkut reveals all… https://www.fort-russ.com/2018/08/breaking-ukrainian-army-blackwater-prepare-use-of-radiation-weapon-on-donbass-documents-map/

Wonder if they will time it, to kick off the mid-term elections, whilst blaming Russia?

Remember, the Blackwater mercenaries, who are now run by Monsanto, back in February 2014, over in Ukraine? Isn’t Eric Prince’s sister, the Education secretary, over in the US? So why is he heavily involved with Soros funded organisations, or does brother Eric, just follow the money, no matter who pays the bills?

Marc Landreville
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Marc Landreville

The US thinks that it can influence Turkey’s future economic development. What they have trouble realising is that the US economic dominance is waning. Turkey may switch to China/BRICS rapidly developing economic infrastructure. The US thinks that Turkey is tied and committed to NATO and will eventually cede to US demands. However, under previous governments, Turkey wanted to become part of Europe, and many decades ago, the EU told Turkey that joining NATO was the first step. In the last decade, it has become clear to Turkey that Europe doesn’t want them. Therefore, there is little benefit for Turkey to… Read more »

John R Balch Jr
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John R Balch Jr

It seems the United States wants to be the only “Super Power” in the world and now “Outer Space” so they can tell other countries who they can trade with and who they can not trade with and what they can trade and what they can not trade. They even have a White House Adviser who wants to kick China out of the World Trade Organization because China won’t bow down to the United States will on trade. The United States are now trying to become like the former Roman Empire, the former Ottoman Empire or the former British Empire,… Read more »

Poovizhi arasan
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Poovizhi arasan

You seem to have forgotten history, in writing this essay, Mr Zuesse . On August 15, 1971, US defaulted on its international obligations, making it the first sovereign default post war in post WW II history. So defaulting on its international obligations is potential answer. But it could damage credibility. Credible alternatives, would be to abrogate the Incrilik treaty arrangements, and insist that rentals on the base be made in Gold or Euros or any other non dollar currencies. Since Yuan comprises at least 10 per cent of the trade basket, it could also be an alternative ! Simultaneously hike… Read more »

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Understanding the Holodomor and why Russia says nothing

A descendant of Holodomor victims takes the rest of us to school as to whether or not Russia needs to shoulder the blame.

Seraphim Hanisch

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One of the charges that nationalist Ukrainians often lodge against their Russian neighbors is that the Russian government has never acknowledged or formally apologized to Ukraine for the “Holodomor” that took place in Ukraine in 1932-1933. This was a man-made famine that killed an estimated seven to 10 million Ukrainians , though higher estimates claim 12.5 million and lower ones now claim 3.3 million.

No matter what the total was, it amounts to a lot of people that starved to death. The charge that modern-day Russia ought to apologize for this event is usually met with silence, which further enrages those Ukrainians that believe that this issue must be resolved by the Russian acknowledgement of responsibility for it. Indeed, the prime charge of these Ukrainians is that the Russians committed a genocide against the Ukrainian people. This is a claim Russia denies.

To the outside observer who does not know this history of Russia and Ukraine’s relationship, and who does not know or understand the characteristics of the Soviet Union, this charge seems as simple and laid out as that of the Native Americans or the blacks demanding some sort of recompense or restitution for the damages inflicted on these societies through conquest and / or slavery. But we discovered someone who had family connections involved in the Holodomor, and who offers her own perspective, which is instructive in why perhaps the Russian Federation does not say anything about this situation.

Scene in Kharkiv with dead from the famine 1932-33 lying along the street.

The speaker is Anna Vinogradova, a Russian Israeli-American, who answered the question through Quora of “Why doesn’t Russia recognize the Holodomor as a genocide?” She openly admits that she speaks only for herself, but her answer is still instructive. We offer it here, with some corrections for the sake of smooth and understandable English:

I can’t speak for Russia and what it does and doesn’t recognize. I can speak for myself.

I am a great-granddaughter of a “Kulak” (кулак), or well-to-do peasant, who lived close to the Russia/Ukraine border.

The word “кулак” means “fist” in Russian, and it wasn’t a good thing for a person to be called by this label. A кулак was an exploiter of peasants and a class enemy of the new state of workers and poor peasants. In other words, while under Communism, to be called a кулак was to bring a death sentence upon yourself.

At some point, every rural class enemy, every peasant who wasn’t a member of a collective farm was eliminated one way or another.

Because Ukraine has very fertile land and the Ukrainian style of agriculture often favors individual farms as opposed to villages, there is no question that many, many Ukrainian peasants were considered class enemies like my great grandfather, and eliminated in class warfare.

I have no doubt that class warfare included starvation, among other things.

The catch? My great grandfather was an ethnic Russian living in Russia. What nationality were the communists who persecuted and eventually shot him? They were of every nationality there was (in the Soviet Union), and they were led by a Ukrainian, who was taking orders from a Georgian.

Now, tell me, why I, a descendant of an unjustly killed Russian peasant, need to apologize to the descendants of the Ukrainians who killed him on the orders of a Georgian?

What about the Russian, Kazakh golodomor (Russian rendering of the same famine)? What about the butchers, who came from all ethnicities? Can someone explain why it’s only okay to talk about Ukrainian victims and Russian persecutors? Why do we need to rewrite history decades later to convert that brutal class war into an ethnic war that it wasn’t?

Ethnic warfare did not start in Russia until after WWII, when some ethnicities were accused of collaboration with the Nazis and brutal group punishments were implemented. It was all based on class up to that time.

The communists of those years were fanatically internationalist. “Working people of all countries, unite!” was their slogan and they were fanatical about it.

As for the crimes of Communism, Russia has been healing this wound for decades, and Russia’s government has made its anticommunist position very clear.

This testimony is most instructive. First, it points out information that the charge of the Holodomor as “genocide!” neatly leaves out. In identifying the internationalist aspects of the Soviet Union, Ukraine further was not a country identified as somehow worthy of genocidal actions. Such a thought makes no sense, especially given the great importance of Ukraine as the “breadbasket” of the Soviet Union, which it was.

Secondly, it shows a very western-style of “divide to conquer” with a conveniently incendiary single-word propaganda tool that is no doubt able to excite any Ukrainian who may be neutral to slightly disaffected about Russia, and then after that, all Ukrainians are now victims of the mighty evil overlords in Moscow.

How convenient is this when the evil overlords in Kyiv don’t want their citizens to know what they are doing?

We saw this on Saturday – taken to a very high peak when President Petro Poroshenko announced the new leading “Hierarch” of the “Ukrainian National Church” and said not one single word about Christ, but only:

“This day will go down in history as the day of the creation of an autocephalous Orthodox church in Ukraine… This is the day of the creation of the church as an independent structure… What is this church? It is a church without Putin. It is a church without Kirill, without prayer for the Russian authorities and the Russian army.”

But as long as Russia is made the “problem”, millions of scandalized Ukrainians will not care what this new Church actually does or teaches, which means it is likely to teach just about anything.

Russia had its own Holodomor. The history of the event shows that this was a result of several factors – imposed socialist economics on a deeply individualized form of agrarian capitalism (bad for morale and worse for food production), really inane centralized planning of cropland use, and a governmental structure that really did not exist to serve the governed, but to impose an ideology on people who really were not all that interested in it.

Personal blame might well lay with Stalin, a Georgian, but the biggest source of the famine lay in the structures imposed under communism as a way of economic strategy. This is not Russia’s fault. It is the economic model that failed.

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Mueller Finally Releases Heavily Redacted Key Flynn Memo On Eve Of Sentencing

Alex Christoforou

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Via Zerohedge


Having initially snubbed Judge Emmet Sullivan’s order to release the original 302 report from the Michael Flynn interrogation in January 2017, Special Counsel Robert Mueller has finally produced the heavily redacted document, just hours before sentencing is due to be handed down.

The memo  – in full below – details then-national security adviser Michael Flynn’s interview with FBI agents Peter Strzok and Joe Pientka, and shows Flynn was repeatedly asked about his contacts with former Russian Ambassador Sergey Kislyak and in each instance, Flynn denied (or did not recall) any such conversations.

The agents had transcripts of Flynn’s phone calls to Russian Ambassador Kislyak, thus showing Flynn to be lying.

Flynn pleaded guilty guilty last December to lying to the FBI agents about those conversations with Kislyak.

The redactions in the document seem oddly placed but otherwise, there is nothing remarkable about the content…

Aside from perhaps Flynn’s incredulity at the media attention…

Flynn is set to be sentenced in that federal court on Tuesday.

Of course, as Christina Laila notes, the real crime is that Flynn was unmasked during his phone calls to Kislyak and his calls were illegally leaked by a senior Obama official to the Washington Post.

*  *  *

Full document below…

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Don’t Laugh : It’s Giving Putin What He Wants

The fact of the matter is that humorous lampooning of western establishment Russia narratives writes itself.

Caitlin Johnstone

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Authored by Caitlin Johnstone:


The BBC has published an article titled “How Putin’s Russia turned humour into a weapon” about the Kremlin’s latest addition to its horrifying deadly hybrid warfare arsenal: comedy.

The article is authored by Olga Robinson, whom the BBC, unhindered by any trace of self-awareness, has titled “Senior Journalist (Disinformation)”. Robinson demonstrates the qualifications and acumen which earned her that title by warning the BBC’s audience that the Kremlin has been using humor to dismiss and ridicule accusations that have been leveled against it by western governments, a “form of trolling” that she reports is designed to “deliberately lower the level of discussion”.

“Russia’s move towards using humour to influence its campaigns is a relatively recent phenomenon,” Robinson explains, without speculating as to why Russians might have suddenly begun laughing at their western accusers. She gives no consideration to the possibility that the tightly knit alliance of western nations who suddenly began hysterically shrieking about Russia two years ago have simply gotten much more ridiculous and easier to make fun of during that time.

Couldn’t possibly have anything to do with the emergence of a demented media environment wherein everything around the world from French protests to American culture wars to British discontent with the European Union gets blamed on Russia without any facts or evidence. Wherein BBC reporters now correct guests and caution them against voicing skepticism of anti-Russia narratives because the UK is in “an information war” with that nation. Wherein the same cable news Russiagate pundit can claim that both Rex Tillerson’s hiring and his later firing were the result of a Russian conspiracy to benefit the Kremlin. Wherein mainstream outlets can circulate blatantly false information about Julian Assange and unnamed “Russians” and then blame the falseness of that reporting on Russian disinformation. Wherein Pokemon Go, cutesy Facebook memes and $4,700 in Google ads are sincerely cited as methods by which Hillary Clinton’s $1.2 billion presidential campaign was outdone. Wherein conspiracy theories that Putin has infiltrated the highest levels of the US government have been blaring on mainstream headline news for two years with absolutely nothing to show for it to this day.

Nope, the only possibility is that the Kremlin suddenly figured out that humor is a thing.

The fact of the matter is that humorous lampooning of western establishment Russia narratives writes itself. The hypocrisy is so cartoonish, the emotions are so breathlessly over-the-top, the stories so riddled with plot holes and the agendas underlying them so glaringly obvious that they translate very easily into laughs. I myself recently authored a satire piece that a lot of people loved and which got picked up by numerous alternative media outlets, and all I did was write down all the various escalations this administration has made against Russia as though they were commands being given to Trump by Putin. It was extremely easy to write, and it was pretty damn funny if I do say so myself. And it didn’t take any Kremlin rubles or dezinformatsiya from St Petersburg to figure out how to write it.

“Ben Nimmo, an Atlantic Council researcher on Russian disinformation, told the BBC that attempts to create funny memes were part of the strategy as ‘disinformation for the information age’,” the article warns. Nimmo, ironically, is himself intimately involved with the British domestic disinformation firm Integrity Initiative, whose shady government-sponsored psyops against the Labour Party have sparked a national scandal that is likely far from reaching peak intensity.

“Most comedy programmes on Russian state television these days are anodyne affairs which either do not touch on political topics, or direct humour at the Kremlin’s perceived enemies abroad,” Robinson writes, which I found funny since I’d just recently read an excellent essay by Michael Tracey titled “Why has late night swapped laughs for lusting after Mueller?”

“If the late night ‘comedy’ of the Trump era has something resembling a ‘message,’ it’s that large segments of the nation’s liberal TV viewership are nervously tracking every Russia development with a passion that cannot be conducive to mental health – or for that matter, political efficacy,” Tracey writes, documenting numerous examples of the ways late night comedy now has audiences cheering for a US intelligence insider and Bush appointee instead of challenging power-serving media orthodoxies as programs like The Daily Show once did.

If you wanted the opposite of “anodyne affairs”, it would be comedians ridiculing the way all the establishment talking heads are manipulating their audiences into supporting the US intelligence community and FBI insiders. It would be excoriating the media environment in which unfathomably powerful world-dominating government agencies are subject to less scrutiny and criticism than a man trapped in an embassy who published inconvenient facts about those agencies. It certainly wouldn’t be the cast of Saturday Night Live singing “All I Want for Christmas Is You” to a framed portrait if Robert Mueller wearing a Santa hat. It doesn’t get much more anodyne than that.

Russia makes fun of western establishment narratives about it because those narratives are so incredibly easy to make fun of that they are essentially asking for it, and the nerdy way empire loyalists are suddenly crying victim about it is itself more comedy. When Guardian writer Carole Cadwalladr began insinuating that RT covering standard newsworthy people like Julian Assange and Nigel Farage was a conspiracy to “boost” those people for the advancement of Russian agendas instead of a news outlet doing the thing that news reporting is, RT rightly made fun of her for it. Cadwalladr reacted to RT’s mockery with a claim that she was a victim of “attacks”, instead of the recipient of perfectly justified ridicule for circulating an intensely moronic conspiracy theory.

Ah well. People are nuts and we’re hurtling toward a direct confrontation with a nuclear superpower. Sometimes there’s nothing else to do but laugh. As Wavy Gravy said, “Keep your sense of humor, my friend; if you don’t have a sense of humor it just isn’t funny anymore.”

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