Father Christmas and Turkey’s economy

This Christmas I was persuaded to dress up as Father Christmas to please our six-year-old granddaughter, who was disappointed he never showed up last year. But I was rumbled. "Father Christmas was wearing grandpa's shoes,” she remarked afterwards.

The same applies to Turkish President Recep Tayyip Erdoğan and his announcement of a new economic model, which is apparently guaranteed to put an end to sky high inflation which is ravaging Turkey amid sharp losses for the lira.

The latest model is supported strongly by the central bank, which has cut interest rates to 14 percent from 19 percent over the past three months even as inflation climbed.

In an apparent expression of sudden confidence in the lira following Erdoğan’s latest economic policy announcement on Dec. 20 - a new dollar-linked lira deposit scheme designed to arrest losses for the currency – the government says lira bank deposits grew by 23.8 billion ($2.2 billion).

But despite a dramatic rebound in the value of the lira up to Christmas Day, it has once again begun to slide in the face of concern over Turkey's monetary and economic policies. At the same time, the amount of hard currencies held by Turkish individual depositors is virtually unchanged since the president’s announcement, official data shows.

Nevertheless, Erdoğan is adamant that he will press on with implementing his plans. “We are lowering interest rates. Don’t expect anything else from me. As a Muslim, I’ll continue to do what Islamic law requires,” he says, reiterating that inflation of over 20 percent must be tackled by lowering interest rates, not by raising them as other countries do.

According to Uğur Gürses, a former central bank official, last week’s lira rally was engineered by the central bank’s backdoor sale of $7 billion in foreign exchange reserves. This was confirmed by the Financial Times in a report on aggressive lira intervention.

Now Turkey’s finance minister Nureddin Nebati would have us believe that the rally in the lira and the fall in the price of gold, dollars and euros was intervention-free because people raced to exchange the currency. Well, if you believe that, then you'll believe in Father Christmas and the Tooth Fairy, but our granddaughter is still not convinced.

The government has since turned its attention to five economists, including former central bank governor, Durmuş Yılmaz. The Banking Regulation and Supervision Agency (BDDK) has filed a criminal complaint against them for spreading alarm and despondency about the volatile lira on social media.

In the current situation there is no room for a sense of humour either. When British economist Timothy Ash tweeted: “Turkey - just realised, Keynes, Friedman, Hayek, Solow, Samuelson, Adam Smith, Kornai, Dornbush, the Fed, ECB, BOE, me, all Western economists, we are all idiots. Wasted all our time, learning economics. Erdoğan just rewrote all the theories”, the comments were taken at face value by a pro-government newspaper, which said they amounted to praise for Erdoğan and his ground-breaking policies.

Nevertheless, the president is in an upbeat mood and has announced that Turkey’s ultimate goal of becoming one of top 10 economies in the world is closer to reality and no longer a dream, despite GDP in dollars shrinking from a peak in 2013. Whether this view is shared by those in bread lines queuing for subsidised government bread is an open question.

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.
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