THE FOES

‘DISBELIEF’: INVESTORS IN TURKEY STUNNED BY ERDOGAN’S FIGHT WITH MARKETS

Dünya Executive - - OVERVIEW -

“Shock and disbelief” - that’s how global money managers reacted to an attempt by Turkish President Tayyip Erdogan to reassure foreign investors about his economic management as the lira went into tailspin. Fund managers who met Erdogan and his delegation in London on May 14, part of a three-day visit to Britain, were baffled about his plans to tame rising inflation and a currency in freefall - while simultaneo­usly seeking lower interest rates.

Some said that while Erdogan has crushed his domestic enemies, he would find taking on internatio­nal financial markets with policies that defy economic orthodoxy much tougher. A resurgent dollar, rising oil prices and a jump in borrowing costs have caused havoc across emerging markets in recent weeks. However, Turkey has been among the worst affected due to its a gaping current account deficit and growing puzzlement over who exactly holds the reins of monetary policy.

Erdogan’s comments that he planned to take greater control of the economy after snap presidenti­al and parliament­ary elections next month deepened investors’ worries about the Central Bank’s ability to fight inflation, helping to send the lira to a record low on May 15. Rampant inflation dogged Turkey for decades before 2000 and has been back in double digits since the start of 2017. But Erdogan has styled himself as an enemy of high interest rates, defying orthodox monetary policy that prescribes tighter credit to keep a lid on prices. Speaking on condition of anonymity due to the political sensitivit­y of the meetings, investors told Reuters they were flabbergas­ted by his stance and willingnes­s to go into battle with world markets at such a fragile time.

FINDING ENEMIES

One noted Erdogan’s long list of enemies, including U.S.-based Islamic preacher Fethullah Gulen, whom he accuses of orchestrat­ing a failed coup in 2016.

“He picks battles with everybody ... he is fighting the opposition, he is fighting Gulen, he is fighting the extremists, he is fighting after the failed coup - now he is fighting the markets, and that is dangerous,” said one fund manager at a major asset management firm. “You can fight your domestic foes all you want, but when you are trying to take on a financial market, that is a battle you can’t really win,” said the manager, whose firm attended a closed-door investor meeting with Deputy Prime Minister Mehmet Simsek.

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