Winter Has Come
Last month our Monthly heralded the approach of winter, the cold winds of which began blowing in October. Political conflicts with America and Germany-cum-EU are slowly boiling over to the economy. There is evidence that Turkish banking system might be the target of some type of sanctions, which would rattle Turkey’s foreign credit-addicted economy. While there are some signs that Ankara is backtracking from the habits that annoy Western partners, significant policy change to appease them is not our base-case scenario.
At home, Mrs. Aksener finally launched her “Good Party”, which has the potential to tap up to 20% of the national vote. Yet, she is facing daunting challenges to live up to that potential. We bet she would make it to the parliament and potentially rob Erdogan off a first-round victory in presidential elections, but that’s it. She is not a game-changer.
In AKP, reform efforts have yet to produce concrete results and will probably never do so. The alienation of voters is increasingly being documented by both anecdotal evidence and statistical data. Erdogan is misdiagnosing the malaise: it is his policies such as the endless crackdown on Gulenists and all kinds of dissent; extreme Islamization of the society, clashes with the West that threaten livelihoods and disappoint the voters. Snap election rumors are denied by the party, but continue to percolate incessantly.
To our South, bloody conflict has been averted in Kirkuk and Idlip thus far, but the post-DAESH wars are just starting. The current alignment of affairs is not in Turkey’s favor. Our involvement in Iraq and Syria will escalate and last for years.
The authorities’ “strategy” of giving growth the priority and trying to live with the imbalances on the side, particularly of a large external financing requirement and high single-digit inflation, is looking increasingly unsustainable. The unrealistic targets of the Medium Term Program (MTP); piecemeal efforts by the authorities to find external financing (through the Wealth Fund) and keep interest rates low through moral suasion, and the CBRT’s efforts to manage an ever-deteriorating inflation outlook with “words” rather than action, should all be seen in this light: as part of a dynamic that would be very hard to sustain, we insist, through November 2019.
It is against this backdrop that we review, extremely briefly, the MTP and the external financing numbers inside.
Please note that there will be no Weekly Update this Sunday, which is the Republic Day in Turkey.
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