Selin Bucak, news editor of Citywire Wealth Manager and a Turkish national, gives her perspective on the ongoing political and economic challenges facing Turkey.
If you speak to any sane economist, any sane person really, they would not suggest starting investigations into 346 social media accounts as the way to fix a broken economy.
However, after remarks like ‘if they have their dollars, we have our God’ and a very real belief that the West is waging an ‘economic war’ against Turkey, it is no surprise that president Recep Tayyip Erdogan’s government is seeking relief by blaming social media users of ‘threatening Turkey’s economic security’.
The chief public prosecutor’s office in Istanbul made the announcement yesterday that it had started proceedings against 346 social media account users. In a statement, it said that these were against ‘provocative posts’ designed to create negative perceptions.
In addition, the Capital Markets Board in Turkey is seeking prison sentences for those who try to affect investors’ decisions or the prices of capital market vehicles through spreading news and using social media.
As if people in Turkey were not scared enough to speak to the press about politics for fear of prosecution, they feel they cannot make comments about the economy either, because they might be targeted.
I can’t claim to remember much about the last big crisis in Turkey back in 2001 as I was quite young. But I do remember that it all kicked off with the president at the time literally throwing the constitution book at the prime minister.
I thought that was the most ridiculous thing that could happen, but now instead of coming up with a workable plan the government is going after people writing about the situation.
Erdogan can point the finger at others as much as he wants, but he only has himself to blame.
So now what? It seems that the only thing being done is give a speech here and another speech there.
If only Erdogan’s daily speeches could amount to as much as Mario Draghi’s ‘whatever it takes’ moment back in 2012.
A number of options for Turkey are being discussed by analysts, economists and the media. Instigating capital controls, raising interest rates, going to the International Monetary Fund...With Erdogan's arrogance, his view that interest rates are the 'mother of all evil' and his belligerent rhetoric against the West, particularly the US, it does not seem likely that he will concede any time soon. But who knows, it is always difficult to predict what he will do next.
Why so surprised?
Much to my disappointment, the elections that Erdogan repeatedly won since 2002 have always been viewed positively from an investment standpoint as it provided stability.
But the crisis Turkey is in right now was always bound to happen, with an overheated economy, rising inflation and structural problems.
But what is most surprising to me is that people were surprised at all. It is interesting to look back through comments that have filled my inbox since the start of the year regarding Turkey.
One fund manager claimed that elections in Turkey have generally been positive events for markets, right after president Erdogan called a snap election back in April.
At the same time, Credit Suisse and Ashmore Group were saying that once Erdogan wins, he will back off the central bank and let it prop up the currency.
While there was a short-term positive response following the elections, Erdogan’s authoritarianism and the appointment of his son-in-law as finance minister over those former cabinet ministers who were seen as market friendly made this election one that turned out not to be so positive in the end.
Now fund managers and analysts are accepting that Turkey has genuine problems and are finding the response from the government disappointing, and rightly so.
But why is it only recently they are opening their eyes to the wider problems? According to a New York Times article, analyst Tim Lee made a call back in 2011 that Turkey was in deep financial trouble. He predicted that in 2013 that the lira would trade at 7.2 to the dollar.
And he said on Friday: ‘Turkey is the canary in the coal mine. We are going to have another crash that will be worse than 2008 in certain ways.’
I met the chief executive of a UK fund house a couple of weeks ago and he told me that a number of years ago someone asked him to launch a Turkey fund. He was very glad that he did not entertain that idea…
A fund manager in Turkey
I am getting a lot of comment from fund managers based in the UK but how is a fund manager in Turkey viewing all this?
Attila Koksal, board member of Unlu Securities, a leading investment house in Turkey, told me that Turkish investors are not generally negatively impacted by crises.
'Because half of total financial assets are in gold and foreign exchange, the other half are in short term deposits. In a crisis, rates and interest rates rise, which increases the yield for investors on a Turkish lira basis. The confusion stems from us being a dollar-based economy,' he said.
'For years I have been telling investors to have a hybrid base currency. For those who don't have savings and have debt however, unfortunately this is a very difficult period.'
He also pointed out that this is the fourth big economic crisis he has seen saying: 'The Turkish people are used to crises.'