Monday, December 27, 2021

Is This Erdogan's Exit Strategy?

Is This Erdogan’s Exit Strategy?

Since the first assault on Turkey’s finances in 2018, which I wrote about multiple times (herehere, and here), I’ve been the lone voice telling everyone that President Recep Tayyip Erdogan is a lunatic but he’s a lunatic with a plan.

That plan is to de-dollarize the economy of a valuable member of NATO geostrategically.  Since the first shots across the bow by the Trump administration at Erdogan’s toying with those powers east of the Bosporus (Russia, China and Iran) the Turkish lira has been the primary mode of attack against Erdogan.

Erdogan has pursued what has been deemed unorthodox monetary policy since firing his Central Bank during the lira’s 2018 crisis. Then the Bank of Turkey wanted to raise interest rates to 30% to tame inflation. Erdogan, rightfully, in my opinion, stepped in and said no.

Earlier this year he went after Bitcoin exchanges to stem the tide against the lira and buddy back up to Davos a little, but they are more than wise to his game and Erdogan’s reckoning with them was always on the horizon. Today we’ve reached the horizon and the attack on the lira has him in his weakest state politically in all the years he’s been in power.

And with the lira blowing out to 18(!!) versus the dollar this week, Erdogan’s monetary policy has been all the news, especially with him promising to cut interest rates rather than raise them which is the conventional wisdom.

This blowout finally pushed Erodgan to unveil a new package of interventions to stabilize the lira.

The idea that monetary policy should only be conducted on the basis of creating ‘low inflation’ is nonsense, but that is what everyone focuses on with respect to interest rate policy.

The key thing to remember about Erdogan is the following. Everything he’s done, including taking control of the Bank of Turkey, has been to call out the IMF and the banking institutions of Europe as ravagers of emerging markets like the one he runs.

He categorically ruled out ever taking another dollar in aid from the IMF during the last time the lira was attacked (2019). Remember, as well, he’s convinced (and I have no reason to disbelieve him) that the coup in 2016 against him was orchestrated by the U.S. and NATO, his nominal security partners.

But no one asked the question, “How does a country like Turkey see its currency with some of the highest interest rates in the world already, collapse over a five month period?”

How does something like this start? Without considering what prompted the slide you’re ignoring what causes it to end. Who has the motive to attack Erdogan through his currency?

Frankly everyone. Is there a limit to creating panic? And if that limit is reached what would it take to reverse it?

So, there are a lot of powerful people who have a history of wanting Erdogan gone. Now, at the same time he’s done very little to secure friends. But, then again there are no friends in geopolitics, only temporarily aligned interests.


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