Mahfi Eğilmez Issues Warning as Turkey’s CDS Diverges from Brazil

Renowned economist and former Treasury Undersecretary Dr. Mahfi Eğilmez has released a stark analysis titled “What the CDS Premium Tells Us,” highlighting a growing credibility gap in Turkey’s economic recovery. While the country has moved away from “heterodox” experiments, Eğilmez warns that the recent uptick in Credit Default Swaps (CDS)—currently at 224 basis points—proves that market confidence remains tied to individuals rather than stable institutions.

The 300-Point Red Line

Eğilmez defines 300 basis points (bp) as the “critical threshold” for any developing economy. Crossing this line signals a fundamental lack of trust from international markets, leading to higher borrowing costs.

“The bill for high risk is always paid by the citizen,” Eğilmez noted, explaining that when the state borrows at higher interest rates due to a high CDS, the resulting fiscal burden is transferred to the public through taxes or reduced services.

Turkey vs. Brazil: A Lesson in Predictability

The core of Eğilmez’s critique lies in a comparison with Brazil. While both nations are major emerging markets, Brazil’s current CDS sits at 129 bp, nearly half of Turkey’s risk premium.

Eğilmez argues that Brazil’s success isn’t about ideology but consistency. “The market doesn’t care about slogans; it looks for rules,” he stated. While Brazil avoided sharp institutional breaks, Turkey’s frequent policy reversals and interventions in the Central Bank have left a lasting “fragility premium” on its debt.

“No More Experiments”

Eğilmez identified the “Presidential Government System” as a turning point where check-and-balance mechanisms weakened, leading to a peak CDS of 643 bp during the 2020-2021 “heterodox” policy era.

Although the return to rational policies in late 2023 successfully pulled the CDS down from those extreme heights, Eğilmez warns that the progress is stalling. He concluded his analysis with a firm call for structural reform:

“To lower the interest burden, we must stop institutional erosion and political interference in technical matters. Turkey does not need new experiments; it needs rules. It does not need new slogans; it needs institutional trust.”