Turkish economic circles say lessons learned on dealing with Trump

There is news that a meteor will hit Earth. Everyone starts taking measures. What does the Turk do? He buys dollars. 

For an ordinary Turkish person the fluctuations in the foreign currency are a barometer of the state of the economy.

Last summer, the Turkish Lira hit record lows following U.S. President Donald Trump tweets announcing economic sanctions against Turkey as a reaction to the detention of pastor Andrew Brunson.

The lira gained value following the release of Brunson, but not enough, prompting jokes like “wish there was a second pastor in jail to be released.”

Trump’s most recent tweet last Sunday night talking about “devastating Turkish economy” in case “Turks were to attack Kurds” has in the first instance created a sense of déjà vu as the lira started to lose value. But that did not last long as the “potential crisis” was averted following a phone conversation between Trump and President Recep Tayyip Erdoğan.

I would argue Ankara was told Trump had to post such a tweet in order to silence those who were against the U.S. troops’ early and quick withdrawal from Syria.

Economists, on the other hand, argue Ankara has learnt its lessons from the past crisis.

That may well be the case too. After all, the state of the Turkish economy no longer leaves room for a war of words that may end up in a political solution accompanied however with a highly disruptive economic cost.

Indeed there is serious concern among financial circles especially about the high spending that is taking place ahead of the March 31 elections.

Economists usually argue that when there is contraction in the domestic demand, increasing public spending is a meaningful tool to resort to revive the domestic demand. But the key is how much spending will render this tool meaningful and beneficial.

The Central Bank’s decision to schedule an extraordinary board meeting for earlier than usual to share its profit, a move designed to shore up the Treasury’s cash reserves, was one of the latest examples of the government’s “election investment” strategy.

This tells us that in order to make a healthy projection about the economy one has to wait for the local elections.

What will happen afterwards?

“We will eat and drink until March 31 and then will get the bill and start paying for it,” said one economist.

The prospect of having a huge bill leaves no appetite. Indeed this wait-and-see period until the election is accompanied by a sense of anxiety due the current alarming situation in the economy as well as a lack of clarity in terms of what kind of a policy will be endorsed following the elections.

There are even speculations that Turkey could knock on the door of the IMF.

While that does not seem to be politically realistic, in view of Erdoğan’s anti-IMF rhetoric, some economists believe the IMF can’t be the solution due to the change in the nature of Turkey’s problems.

While in the past it was Turkey’s public debts that triggered the crisis, currently it is the public sector’s debts that are a cause of concern. The IMF needs one interlocutor to negotiate, but we are talking about hundreds of companies in difficulty, which means, according to one economist, having the IMF come to rescue is out of question.

In terms of the post local elections period, the most positive point is the fact that it will be the start of a 4.5-year period without elections. “Making an analysis for the post-election period requires psychology, sociology and the like,” said an economist pointing to a tweet-driven U.S. policy as well as to Turkey’s presidential system where President Erdoğan calls all the shots.

Otherwise almost every economist tells you about the same recipe when it comes to the fundamentals of recovering the economy. The first thing is building trust and the second, which is the natural continuation of the first, is the rule of law. Restoring trust passes from dissipating concerns about the independence of the Turkish media. Rule of law remains the number one criterion in the eyes of the foreign investors... and not just of foreign but of all the local economic players as well, to be exact.