An introduction to Erdoganomics: Stealing from tomorrow to save the day

President Erdogan’s economic policies don’t fit any school of economic thought known on Planet Earth now or in the past. Though, we should say in some aspects it comes close to Mercantilism.  But, it certainly missed the Ricardian revolution of comparative advantage. It has no clue about one of main Fundaments of Economic Theory:  The Impossible Trinity of controlling both the exchange and interest rates when the capital account is open to financial flows. It has another tenet:  Lie about the statistics to hide the fact that long-term impoverishing policies are pursued to save the day. For instance, a main opposition deputy recently slammed the finance minister’s comments on Turkey’s fiscal success, noting that public debt has nearly tripled in Minister Berat Albayrak’s two-year assignment. The deputy added that the Treasury’s debt rollover rate is nearly 200 percent. 

Funny, you should say that

A main opposition deputy slammed Turkish Finance Minister Berat Albayrak for his remarks that Turkey was well off fiscally, noting that public debt nearly tripled during the president’s son-in-law’s term, daily Sözcü reported on July 14.

Public debt, Ankara’s debt to businesses, organizations or even other states, was at 296.1 billion Turkish Liras in the second quarter of 2018 when Albayrak became finance minister, Republican People’s Party (CHP) Istanbul lawmaker Özgür Karabat noted.

Turkey’s public debt at the end of 2020’s first quarter was 782.2 billion liras before the COVID-19 pandemic had even struck, and  2.6 times the total when  Albayrak took over in 2018.

While public debt is at 17.7 percent of gross domestic product (GDP) before the pandemic’s fiscal impact hit, public debt rollover rates soared during the pandemic, Karabat noted.

The Central Budget Reported a monthly deficit of TL19.4 bn in June, which brings up  the YTD total TL109, a 39% increases YoY.

Central Bank’s reputability down the drain

Karabat also noted that a July 11 notice in Turkey’s Official Gazette removed a ten-year experience requirement for anyone who would serve as the deputy chair of Turkey’s Central Bank.

“Is it really worth ruining the Central Bank’s reputability to reward someone from the Palace’s circle? The Central Bank is the blood and sweat of 83 million people,” said Karabat.

The deputy added that the same decree removed the requirement to save 20 percent of the Central Bank’s profits in contingency reserves, only mandating that the last year’s profits be kept aside.

Noting that the decree allowed all profits to be distributed, the deputy said the goal was to turn the Central Bank into “Palace Corporation.”

To add, for the last two data weeks’ state banks exceeded their BRSA-set FX short position limits, which suggest that they are still heavily selling dollar to defend the lira and Central Bank might be running out of liquid reserves to lend them through swap contracts.

When asked in a recent virtual investors meeting about the level of FX reserves governor Uysal merely commented “There is nothing unusual to report”.   Now, that is pure and crass Erdoganomics.

Twitter comments by Ugur Gurses, Birol Aydemir, Isik Okte, Sozcu, Duvar  

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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.