FT: The survival of the Turkish economy goes through … orthodoxy

Few are jealous of Turkey’s new central bank chairman or finance minister. Investors welcomed the reshuffle of the country’s financial staff, which began this weekend with the replacement of the central bank governor and continued with the resignation of Berat Albayrak, the finance minister and son-in-law of Turkish President Tayyip Erdogan. The Turkish pound reacted on Monday with a rally, the largest in two years. Erdogan’s unorthodox approach to the economy There is little prospect of an independent monetary policy, as the Turkish leader is determined to pursue unorthodox economic policies. of the “interest rate lobby”, a shadowy group of bankers who believe they want to raise interest rates solely for their own benefit. Erdogan advocates a radical theory that inflation is driven by tight monetary policy, as opposed to from the orthodox point of view among economists that raising interest rates would be the appropriate t way to combat Turkey’s long-running inflation. Mr Erdogan ousted the former central bank governor in 2019 for “not following the instructions”. The fact that Mr Erdogan has embraced these economic theories partly reflects the increasingly short-term outlook he has adopted, given the ongoing Turkey’s economic growth since the 2008 crisis has been based in part on a boom in “hot money” construction investment as investors in rich countries seek returns. Erdogan’s authoritarianism has driven away the longest-term foreign direct investment that could finance the current account deficit. The policy mix has put Turkey at a disadvantage. The blow to the country’s tourism sector – a key source of foreign exchange – from the pandemic as well as the reversal of capital flows has contributed to the large drop in the pound. Despite Monday’s rally, the currency has fallen by about 25% against the dollar since the beginning of the year. Research activities in the territorial waters of Greece and Cyprus, and earlier threats against a new wave of migrants in Europe, have severely disrupted relations with the EU, by far its largest market. Like Russia, it is causing problems, but it does not have rich oil and gas reserves and a disciplined macroeconomic policy. Hopes for a change in course in the Turkish economy The attempts to boost the pound by keeping interest rates low forced the central bank to waste almost all of its foreign exchange reserves and did nothing to stop the fall. Only a return to a more orthodox policy, with higher interest rates and lower spending, will restore confidence in the Turkish currency. Finally, Turkey’s long-term prosperity will depend on whether it will attract foreign direct investment again and move further forward. its accession to the customs union of the European Union. At present, however The most important task of the next central bank governor and finance minister is to implement the appropriate policies. This will be difficult, as long as Mr. Erdogan is there. Follow him on Google News and be the first to know all the news See all the latest news from Greece and the world, at

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