Listen, Turkish Sultan, soccer enthusiast, and man who will get his hands on that damn Fethullah Gulen if it’s the last thing he does, Recep Tayyip ErdoÄŸan, is going to have to take over the central bank, ok?
He explained why last week in a not-at-all alarming interview with Bloomberg TV.
See the thing is, people will be predisposed to holding someone accountable when there’s a currency crisis and double-digit inflation. Ultimately, the blame will fall on the president and so, it follows that the president should make monetary policy. Because you know, “the buck stops here” – or something.
Here’s what Erdogan told Bloomberg last week:
When the people fall into difficulties because of monetary policies, who are they going to hold accountable? They’ll hold the president accountable. Since they’ll ask the president about it, we have to give off the image of a president who’s influential on monetary policies.
If you just kind of cast aside the whole “central banks should be independent” thing and accept that Erdogan is a dictator who, as dictators are wont to do, makes policy by decree (unless he’s trying to get Gulen extradited from Pennsylvania, in which case Erdogan will tell you that every organ of the government is not in fact under his control but is secretly beholden to an “octopus“), then the above makes some measure of sense. Until you remember that Erdogan’s “theories” about rates and FX revolve around the notion that higher rates are the cause of inflation and currency depreciation. Then you remember that this is a man who calls himself “the enemy of interest rates” and who earlier this month declared that interest rates are “the mother and father of all evil.”
It’s at that point that you begin to question the relative wisdom of allowing monetary policy to be conducted by a madman, and those questions invariably lead you back to the common sense conclusion that it’s not just monetary policy that should be kept safe from autocrats, but in fact public policy more generally. Ultimately, you find yourself back to square one, where common sense dictates that putting maniacs in charge of anything is a terrible idea.
Given all of that, you can understand why the market is genuinely perturbed at the prospect of Erdogan commandeering the central bank once the “election” is out of the way next month, something he all but explicitly said he would do in the above-linked Bloomberg interview.
Regular readers are well-versed in this saga, but you’re reminded that the lira and Turkish assets in general briefly rallied last month when Erdogan made it official that elections will be held early. The excuse for the fleeting respite was that there would be “less uncertainty” once the election was over and that having consolidated power officially, Erdogan wouldn’t need to keep acting like a crazy person.
As multiple analysts were quick to point out, there was never any “uncertainty” in the first place when it comes to the vote — he can’t fucking “lose” precisely because it isn’t really an “election”. The only “uncertainty” emanates from his brain, in which higher rates cause inflation, so the more power he has, the more likely it is that he’s going to keep pushing for lower rates and more stimulus and on and on. That, in turn, meant that anyone buying the lira or Turkish bonds the day he announced the official date for the elections was stupid. Plain and simple.
Well fast forward to Monday and the lira is in a death spiral. The following chart could be annotated to death to include the myriad hilarious things that have happened over the past two months (including the half-hearted efforts by the CBT to stanch the bleeding with an LLW hike, a similarly weak-willed effort to provide banks with USD liquidity and a farcical “emergency meeting” Erdogan held with economic policymakers), but I’ve just annotated it to show the brief rally when the election date was brought forward by some 18 months:
That’s some tough shit right there, and soaring yields are both a consequence and an aggravating factor of the ongoing malaise.
The banking regulator was at pains on Monday to assure folks that foreign currency deposits aren’t in danger. Akben predictably blamed pre-election propaganda for that “rumor.”
“Such a decision is neither discussed or a work has been done on it,” he said, before suggesting that credit agencies are engaged in a conspiracy to foster negativity despite the banking system being “strong”.
So what are you to do if you’re an investor? Well, pray – according to broker Alnus Yatirim (based in Istanbul).
“God help Turkey,” reads the broker’s sign-off to a morning note in which they bemoan a central bank that is forced to sit on its hands.
If you read the whole thing, they’re basically begging CBT to intervene, but apparently realizing that isn’t possible (or at least not to the extent that’s necessary), they’re going to go ahead and just ask for divine intervention.
Here’s the actual Google translation from the note (and please, spare me your critiques, I’m not a linguistics expert):
This trend continues this week’s closing at 4.58, the following week It will be 4.75. If this trend can not be intervened BIST 100 93 thousand levels may come to the agenda for. Last day As we said, we test oral intervention, They are trying. The results will be clear this week. CBRT latest International Investment Position data 2018 As of February, Turkey’s foreign assets 233.6 billion while the liabilities were $ 702.2 billion. So Turkey’s the difference between foreign assets and foreign liabilities It was $ 468 billion. Only companies outside the financial sector The net foreign exchange position deficit was $ 222 billion. At the end of February 7 The exchange rate was 3.80, which was 4.52 our obligation to the world Increased by TL 340 billion. State budget for comparison Let’s give an example of openness. Central government in 2017 If we take into account that the budget gives a deficit of TL 47.4 billion, Turkey’s state budget deficit seems so lost. And Moreover, this loss continues. Every 1 kurus increase in the rate, The obligations of approximately 5 billion TL Turkey increase. At the same time when this storm falls The problem of dollars will grow even bigger and the size of the damage may increase. This CBRT does not intervene when intervention is possible the head becomes responsible. The state treasury ended with 16.61% CBRT’s use of 13.50% when borrowing. The market must be pioneering and leading the market we are facing a central bank that follows is showing.
For those who can read it, here’s the original: