Erdogan Feasts on Chaos While the Lira Suffers

It’s almost like Turkey desires an economic crisis. Threatening to expel envoys from powerful allies days after a massive and widely derided interest-rate cut was a recipe for the currency’s nose dive.

That’s precisely what President Recep Tayyip Erdogan got: The lira fell to a record low against the dollar in early Asian trading Monday. It’s down about 24% this year, making it the worst performer among emerging market peers. There are few good outcomes for the country, even after allowing for U-turns on some of Erdogan’s most contentious measures. Monetary and diplomatic policy look increasingly driven by the need for controversy and brinkmanship.

While the foreign-policy fracas isn’t directly linked to last week’s shock 200-basis point rate reduction, it serves a similar purpose: the erosion of confidence in Turkey’s ability to manage relations with capital and allies. Why would Erdogan seek to undermine the currency, often seen as a barometer of economic health? Perhaps he is trying to underscore — or foment — the idea that dark forces are out to get Turkey, and he is the only guy who can stand up to them.

Erdogan may not necessarily be wedded to this stance. Late last year, unhappy with inflation and anxious to bolster a languishing currency, the president installed a central bank governor who raised rates aggressively — until he went too far and was fired in the dead of night. His successor, Sahap Kavcioglu, took a while to undo that hard work, but seems to have gotten the message. His choice may have come down to  protecting his career or the lira. If last week’s events proved anything, it’s that the latter would take the fall. Next month, who knows?