The Economist - USA (2020-11-21)

The EconomistNovember 21st 2020 45

1

W

hat a difference a family row

makes. Only a few weeks ago, the

Turkish lira was plummeting from one re-

cord low to another as the central bank sat

on its hands, foreigners were dumping

Turkish stocks and the country’s finance

minister, Berat Albayrak, was arguing that

exchange rates did not matter. Today the

currency is enjoying a big rebound, the

stockmarket is soaring, and officials are

talking about the need to reform the courts

and keep inflation in check.

For more than two years, Turkey’s auto-

cratic president, Recep Tayyip Erdogan,

had relied on Mr Albayrak, his son-in-law,

to run the economy. Mr Albayrak nearly ran

it into the ground. With banks dishing out

credit at rates below inflation to revive

growth, the lira sank by over 40% against

the dollar, burning a hole through the sav-

ings of millions of Turks. The central bank

and state banks wasted at least $100bn in

precious foreign reserves in an abortive at-

tempt to salvage the currency.

Mr Erdogan finally slammed on the

brakes. On November 7th he sacked the

central-bank governor and replaced him

with one of Mr Albayrak’s rivals. A day later,

an indignant Mr Albayrak, once touted as

his father-in-law’s prospective successor,

stepped down. Since then the lira has re-

sponded with its best weekly performance

(a 10% rally) for two decades.

The change in tone has been remark-

able. The new central-bank governor, Naci

Agbal, and the new finance minister, Lutfi

Elvan, are making all the right noises about

stabilising the currency and bringing infla-

tion down to single digits. The justice min-

ister, who has presided over a sweeping

crackdown against government opponents

since 2017, has discovered a passion for the

rule of law, asking judges to comply with

constitutional-court rulings and help im-

prove the climate for foreign investors.

Those investors are needed: reeling from

the pandemic, the economy shrank by

nearly 10% in the second quarter.

Even Mr Erdogan, a sworn enemy of

high interest rates, now says Turkey may

have to swallow “a bitter pill”, meaning a

dose of austerity. As The Economistwent to

press, the central bank was expected to im-

pose a spectacular rate rise of at least 400

basis points. Anything less might have trig-

gered another run on the lira.

Mr Erdogan had to surrender to market

pressure and sack Mr Albayrak. “There was

a real chance that the thing would have

snowballed and you would have a full-

blown currency crash” unless Turkey’s

leader had changed course, says Paul Mc-

Namara of gamInvestments. Another op-

tion would have been to seek help from the

imf, something Mr Erdogan had previous-

ly ruled out. The president would also have

had to pay a political price. A group of 30 to

40 ruling-party parliamentarians is said to

have threatened to defect to the opposition

unless Mr Albayrak resigned. The overhaul

Turkey’s economy

On the edge

ISTANBUL

President Recep Tayyip Erdogan starts to face the facts

Losing the lira

Turkey

Source:RefinitivDatastream

10

8

6

4

2

0

20182016

Lira per $

Inverted scale

15

10

5

0

-5

-10

20182016

GDP

% change on a year earlier

Europe

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