A bridge too far
Avid movie watchers may recognize the headline: A Bridge Too Far was an epic WWII all-star packed movie directed by Richard Attenborough in 1977 about the Allies’ operation in the Netherlands to break German lines. Based on historical events, the Allies attempted to capture several strategically important bridges in the Netherlands in the hope of breaking the German lines in September 1944. The operation was heavily dependent on paratroopers and armored vehicles, but mismanagement and poor planning result in its failure. It’s one of the most complex military operations to execute, alongside amphibious operations.
Regarding Turkey’s case, the hopes of a post-election normalization of economic policy (higher real rates and more market friendly rhetoric) suffered a double setback as President Erdogan appointed his son-in-law, Berat Albayrak, as finance minister and the Central Bank failed to raise rates at its July meeting. Furthermore, the deteriorating major macroeconomic figures signals a complex economic situation in the making, like in the textbooks of economy. The International Monetary Fund forecasts Turkey’s current-account deficit will be over 5 percent of gross-domestic product in 2018, the widest among emerging economies in the Group of 20 nations. The consumer inflation index for July spiked to 15.9 percent in July, its highest annual rate in 15 years. Turkey’s fiveyear credit default swap was at 350 basis points, up from around 175 basis points in January, whilst the lira has weakened from around 35 percent to the dollar year to date. Yields on Turkish lira bonds that mature in November 2019 have risen from 13 percent to over 20 percent, according to Thomson Reuters.
Turkey’s woes come against a backdrop of wider pressure on emerging markets, which have been hit this year amid a stronger dollar, higher U.S. interest rates and an escalating trade conflict between the U.S. and China.
The gloomy picture for Turkish economy needs bold actions to overcome the difficulties, other than making statements in a fancy environment. As a first step, Turkey’s monetary policy anchor may need to be established again to gain the credibility of markets. Furthermore, additional steps may need to be taken on the structural reform side.
To conclude, without a decent plan and swift execution, a failure can be inevitable like in A Bridge Too Far.