Muddle-through, it is

TURKEY - In Brief 24 May 2018 by Atilla Yesilada

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I am writing this note to augment Dr. Murat Ucer’s commentary on CBRT action, titled “CBRT Finally Acts, Avoids the Worst – For Now”.Our audience should recall, that Murat and I have now focused our combined energies on forecasting two variables: Can Turkey survive the period between now and March local elections, which is the full election cycle and during which significant corrective policy action is not too likely.What would happen afterwards? We provided our tentative answers in our last Weekly report, where we noted In the interim, we predict the elections will result incohabitation in Ankara, which will render policy adjustmenteven more difficult than it is now. On the other hand, fiscal excesses ought to end until the beginning of 2019, while salutary additional tightening by CBRT is possible. Doped by the an endless series of pork-barrel packages, the economy is unlikely to decelerate by itself, meaning that the specter of a BoP shock (we hate to use the word crisis)will remain forever in the back of our minds, while a positive performance by any TL-denominated asset class is difficult to imagine. After March elections, the new administration willappeal to IMF for rescue, or unveil an “IMF-type”stability package of its own, replete with fiscal and monetary tightening as well as limited structural and political reforms.If we are wrong, the alternative is Argentina or a devastating BoP crisis. This note affirms the scenario but makes minor tweaks. After yesterday’s rate hike, President Erdogan took the podium in a public event essentially retracting his controversial statements made to Bloomberg TV in London. He said that Turkey will never violate the rules of fr...