Developments in the global economy complicate President Recep Tayyip Erdogan’s “plan to improve relations with the West and overcome economic difficulties.” Rising commodity prices, especially oil and food, will necessitate a longer-term tight monetary policy. It is unknown whether the patience of the President, who aims to hold elections in such an environment, will be based on the new situation.
Economic conditions worsened by the pandemic and Joe Biden’s presidency in the United States brought President Erdogan to the brink of a difficult election. With the coalition partner MHP, the gradual melting of voting rates in the polls also strengthened the new option. Feeling that he had to re-strengthen relations with the West to cope with the economic crisis, Erdogan changed his economic leadership and switched to tight monetary policy and promised economic and legal reforms.
Erdogan, who has yet to reach the warm contact he has hoped for with the West, has been seen to increase security and nationalist rhetoric to stem the tide. On the other hand, he uses a more careful language in his relations with the West, despite some issues compared to the past. It has entered a relatively smooth cycle with the EU, but the new US administration, Turkey is seen by force. Faced with the United States’ uncompromising stance on the S-400s, Erdogan was confronted with Biden’s conditions, which emphasize democracy and human rights in their relations, as in all countries. This situation complicates the safety policy of increasing the dose.
Why are reforms delayed?
Meanwhile, the announcement of the so-called economic and legal reforms is being delayed. Erdogan began to say behind the scenes that he wanted to discuss his reform projects with the United States and the European Union, and therefore the statements were postponed.
In addition to relations with the West, it is clear that global developments will delay economic recovery. Former Chief Economist of the Central Bank. Hakan Kara, in his assessment of the World Newspaper, said that the tight monetary policy, the appreciation of the TL to reduce inflation and reduce the external deficit through demand will slow down loans, he said. Noting that inflation and the current outlook are critical for policies to succeed in the short term, Kara said, “But; Recently, there has been a major risk for these two macro target variables to move in the desired direction: commodity prices. In other words, the growth of products such as oil and food metals in international markets. Stressing that the increase in commodity prices will increase the import invoice on the one hand, and on the other hand will have a negative impact on inflation due to entry costs, Kara pointed out that the time required for success will be extended for this reason.
In summary, the plan to achieve growth with hot money by tackling inflation and the current account deficit with high interest rates is problematic. Prolonged tight monetary policy, broader economic reforms, and more radical legal reforms may require a return to security policy and the strengthening of democracy.
Journalist Erdal Healthy
Income in the economy can affect politics
We do not know that President Erdogan has taken such a difficult path by adopting a tough monetary policy by appointing a new economic leader instead of his son-in-law. Given Erdogan’s notion of “high growth no matter what,” it can be said that his goal is to “recover the economy in the short term, to strengthen the alliance with the West, but then return to a policy that will win the election.” .
At this point, the realization of this goal seems to be even more difficult. Erdogan made his choice, but so far he has not taken an irreversible path. The delay in announcing the reform can also be considered in this context. We do not yet know whether the West can tolerate tough monetary policy and growing demands. If he sees this path as “hopeless” and continues, he may have to sacrifice growth plans and endure a decline in their voices.
To read more: Is the recovery in the Turkish lira lasting?
How long will the positive trend in exchange rates last?
The success of the tight monetary policy, accompanied by a change in the management of the economy, is evident in the improvement of exchange rates. The dollar exchange rate, which rose to 8.65 pounds in early November, fell below 7 pounds this week to 6.9 pounds. The global depreciation of the Delhi is also effective in the positive trend in currencies. But the real share of changing monetary policy …
The appreciation of the TL is closely monitored to show the success of policies. In recent days, we often see TL reports from foreign banks. According to foreign banks, the exchange rate will continue to fall and may fall to 6.80 TL or less. However, in the same analysis, we see that the fluctuation range is kept high, forecasts are given for 6.50-6.80 TL for the lower limit, and widened to 7.50 TL for the upper limit.
We can say that the exchange rates will maintain their current exchange rates in the short term, but the main direction will be determined by the choices Erdogan will make. There is no doubt that Erdogan will not tolerate the prolongation of a tight monetary policy, that relations with the West will return to a troubled period, and that there will be risks such as sanctions. If these risks become a reality; It would not be wrong to say that the reached exchange rates will be temporary and that exchange rate levels in early November 2020 may be restored.
© Deutsche Welle Turkish