A long and difficult descent
The Turkish political story has become too convoluted for any sane mind to follow and trace out conclusions. We do our best, but our judgment about the clear and present dangers to politics and economy are somewhat different than what we construe as the near-consensus view from abroad. First, we need to examine the question of whether President Erdogan still retains some rationality, or has become “causally disconnected from the event horizon of current events”, borrowing an expression from cosmology. While we construct an explanation for the unprecedently sloppy policy making of late, we can’t rule out Erdogan has lost his magic touch. We propose two rationality tests.
For us, the real and very immediate threats to political and economic stability are to be found at home, in the guise of the COVID-19 epidemic which threatens to get out of control and rapidly spreading economic hardship. The juxtaposition of these two processes is a visible reduction in Erdogan’s popularity as well as the combined votes of AKP-MHP.
We then move on to a potential Biden Presidency, finding room for compromise, in contrast to most pundits’ views.
We devote the end of the report to a big picture question -- how will this mess end? – and to answer it, since there are too many moving parts, we list six key events/processes modeling Erdogan’s potential responses under the assumptions of rationality and otherwise, concluding that “the path to victory” is very narrow.
On the econ side, we use our favorite Q&A format to address some key issues that nowadays seem to be in our readers’ minds.
In a nutshell, growth is rebounding, but the outlook is getting cloudier, as we speak.
The CBRT’s colossal mistake of not hiking the policy rate at the last MPC meeting of October 22 and the unsatisfactory manner of addressing the queries during the presentation of Inflation Report subsequently, appears to have triggered another currency tremor, which is playing out as we speak. As usual, it is hard to foresee how exactly it will play out and how it will end, but another round of hikes looks inescapable.
Although the balance of payments pressures appeared to have moderated recently, we are not out of the woods, until Ankara/CBRT executes a bold and credible hike, which, incidentally, is a necessary but not a sufficient condition to get us out of our morass.
A bigger problem in this connection -- or shall we say, the elephant in the room? -- continues to be Ankara’s pro-growth mindset and attempts to create an alternate reality of sorts to achieve growth, which we do not see changing any time soon, or at least without further market turmoil.
Please note that there will be no Weekly report today.
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