Turkish Business Group Says Erdogan’s Economic Model Is Failing
Turkish Business Group Says Erdogan’s Economic Model Is Failing
(Bloomberg) -- A major Turkish business association called on President Recep Tayyip Erdogan’s government to abandon its current economic policies, citing recent market turmoil as proof that the experimental model is bound to fail.
A series of interest rate cuts by Turkey’s central bank have weakened the lira and spurred a strong demand for hard currency, destabilizing the entire economy, the group, Tusiad, said in a statement on Saturday.
“The need for a return to the generally accepted rules of the science of economy is obvious,” Tusiad said in a statement that didn’t mention Erdogan.
The tone of the comments highlight how Tusiad -- once the umbrella organization for Turkey’s most powerful businesses -- is walking a tightrope to get Erdogan’s attention without making itself a political target.
Tusiad members have lost much of their influence under Erdogan, who presided over the emergence of a new group of wealthy businessmen that supports his cause and the ruling party.
The reference in the statement to orthodox policy-making is a veiled criticism of Erdogan’s advocacy for rate cuts that pushed Turkey into a currency crisis. The lira has lost more than half of its value against the U.S. dollar this year, with declines gaining pace after Erdogan unveiled an economic model that relies on lower borrowing costs and a cheaper currency.
In the eyes of the president, Turkey can free itself from reliance on foreign capital flows by abandoning old policies that prioritized higher interest rates and strong inflows. At the heart of his ideas is a belief that lower interest rates will also curb consumer price growth -- the exact opposite of the consensus view among the world’s central bankers.
The first few weeks of Erdogan’s most recent economic experiment have been sobering. With the currency sinking to fresh record lows every day, the yield on Turkey’s 10-year debt rose to a record Friday, according to data going back to 2010.
Consumer prices are rising so fast that supermarket employees can barely keep up with changing labels, while working class Turks and pensioners form long lines in front of municipality stalls to get subsidized bread.
Erdogan has said temporary volatility is the price to pay for Turkey’s economic “war of independence” against speculators and “barons” of international finance. The president must win back some of the support lost since the pandemic in order to win presidential elections scheduled for 2023.
©2021 Bloomberg L.P.