No end in sight to the distress
As Turkey’s caseload reached around 52K by Saturday, which may be a significant undercount, we have begun to question the administration’s capacity to suppress the epidemic in a timely manner. Short of an unanticipated decision of an open-ended national curfew, the outbreak is unlikely to peak before end-May to mid-June, while lifting the restrictions on social distancing and movement of people and goods, could last through the summer months.
One of the more important reasons for our relative pessimism is the outbreak in Iran, which is stoking those in neighboring Iraq and Syria, with several spillover effects to Turkey. Of these, Idlib Province of Syria tops our concerns where an outbreak is considered unavoidable, resulting in huge casualties and compelling Turkey to divert efforts from fighting the virus at home.
To recall, Ankara promised to activate the Russian-made S-400 anti-missile batteries in April, the fulfillment of which has been complicated by its quest to find swap lines to alleviate the growing FX market pressures. A deal on S-400s remains a necessary but not sufficient condition for any swap agreement, which President Erdogan may be forced to accept. A stand-by with IMF would probably require a currency shock beforehand.
March polls reveal rising awareness of the coronavirus and ways of warding off infection, as well as satisfaction with the way the administration is handling the emergency. Yet, based on our above-noted base-case scenario, these results ought to change for the worse for President Erdogan, who will be facing the severest political test of his career between now and June.
Last Thursday, our econ author held a webinar on the state of Turkish macro (link here). He provides a quick rundown of what he has humbly tried to say there -- in these times of “radical uncertainty” -- in his favorite Q&A format.
Please note that there will be no weekly report today.
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