Thursday , July 7 2022

Turkey is turning to economic collapse, explains Ashmore, asset manager – Business News


LONDON: President Recep Tayyip Erdogan runs the risk of pushing the Turkish economy to a similar economic collapse to what has been seen in Latin America under populist regimes, according to Ashmore Group Plc.

Although it is more diversified than the Venezuelan oil economy, Turkey is currently on a path that is very similar to policy errors that will probably lead to its ruin, according to the emerging market asset manager of 85,000 million of US dollars.

Capital controls, nationalization and other policies to prevent the private sector from protecting its properties as the macroeconomic environment deteriorates are still the following "logical policy steps" that will continue in Turkey, Jan Dehn, head of research at Ashmore said in the comments sent by email. .

He made the statements after Erdogan shook the markets rejecting the governor of the central bank Murat Cetinkaya to keep the interest rates too high in his opinion.

"The problem is that the return to good policies has very high political costs," said Dehn, who captured the Russian ruble market in December 2014 and was optimistic in emerging markets in October 2015 , months before the start of a two-year concentration.

"The longer it slows down the higher cost, that's why politicians who go through the heterodox route rarely change stains and almost always end up in crisis."

Turkish officials have repeatedly denied any plan to impose capital controls and have stated that they would comply with the principles of the free market.

Here is the characterization of Dehn from the process that says that Turkey could witness:

Bad economic policies begin to extract a political cost.

Instead of determining the causes of the underlying economic problem, the government decides to attack the symptoms of the problem, such as inflation, slower growth, weaker currency and the slowdown in investment.

Meanwhile, real problems are ignored and worsened. They include bad monetary policies, growing interventionism, non-compliance with local financing markets, too low savings rates and bad external policies.

The government also attributes the other groups instead of themselves, because this works politically, but only makes investors and companies more concerned, since Erdogan will need more and more expatriations when the economy gets worse.

As the economic perspective worsens, investors and companies are beginning to take measures to defend their wealth and livelihoods. This causes the flight of capital, the reduction of the investment and other strategies of cover.

The government then begins to blame the private sector for poor performance, taking measures to prevent its defensive actions. Enter the capital controls, the nationalization, the forced conversion of the contracts to the lira from the euro, etc.

Over time, the government has no funding, it has no growth, it has no future and it sank in a major crisis. – Bloomberg

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