On myths and illusions
The Erdogan government has failed to suppress the raging COVID-19 epidemic or provide adequate financial aid to those who suffer from its consequences. A hasty decision to ease curfews and other social restrictions is backfiring badly, jeopardizing the all-critical summer tourism season.
All polls are unanimous that people want economic relief and an end to the epidemic, while Mr. Erdogan and his loyal partner Mr. Bahceli are wasting precious time with a Human Rights Action Plan and economic reform (both of which are fictional), a new Constitution, an imaginary war against terror and frivolities such as a Space Program. We are almost certain that the detachment between the agenda of the people and the governing parties will worsen economic performance and accelerate the flight of voters from both parties.
We also wrote on two futile ideas occupying pundits’ attention, namely closing down the pro-Kurdish Rights Party HDP and amending electoral laws to increase seats per vote for AKP-MHP. The first could trigger external sanctions and/or by-elections, while the second has so far been proven mathematically impossible.
We skirt marginal foreign policy issues such as unrest in Armenia and frictions with Iran to focus on relations with the US and EU. While we still await a final reckoning between Turkey and the West, a new theory of engagement, namely intentional neglect, suggests it could be delayed, letting Erdogan and Bahceli stew in their own juices.
In the Econ section of the report, we briefly revisit a few of what we identify as the “(semi-)myths of Turkish macro” – 5 of them, to be precise. We do not necessarily claim that they are entirely wrong, and some of our readers will surely have some disagreements with us. But here we go…
Myth #1: Turkey has done it again! It has shown its resilience by achieving one of those rare positive growth rates in an epidemic year.
Myth #2: Thanks to tight monetary policy, inflation will start declining, and de-dollarization is a strong possibility down the road.
Myth #3: Capital inflows have begun to flow in, the global environment is supportive, and Turkey should be able to comfortably finance (the consensus forecast of) a $25-$30 billion current account deficit this year.
Myth #4: Turkey’s fiscal anchor is fully intact, which is a major credit strength.
Myth #5: The new economic management team is superb, the Agbal-Elvan duo, which seems to have President Erdogan’s ears and backing, should be able to turn things around.
Please note that there will be no Weekly Tracker today.
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