Aug 14 2018

Turkey’s crisis was self-inflicted – FT

Turkey’s crisis was largely self-inflicted as Turkish President Recep Tayyip Erdogan gathered power in his own hands and employed highly unorthodox economic policies, the Financial Times said.

Erdogan’s approach, coupled with fiscal vulnerabilities that had existed for some time, caused investors to turn aggressively against the lira, the Financial Times said in an editorial.

Direct contagion with other emerging markets is likely to be limited because Turkey's trade with those countries is limited. Meanwhile, the European Central Bank’s monitoring of European banks with exposure to Turkey means that vulnerability is surpressed, the FT said.

“Mr. Erdogan appears set against further rate rises, which he misguidedly claims fuel inflation, and to avoid an IMF bailout,” the newspaper said. ‘Tension with the U.S. might, in any case, make the latter difficult to secure. Indeed, Turkey’s problems have been exacerbated by U.S. sanctions over Ankara’s refusal to release an imprisoned U.S. pastor."

Brazil, with he prospect of a contentious election this autumn, may be particularly at risk along with South Africa, which has a respected finance minister and central bank chief but faces doubts over its determination to stick to economic orthodoxy, the FT said.

“The most exposed as the tide of easy money starts to roll out will be those investors deemed to lack sound and coherent fiscal and economic policies,” the newspaper said.

Wealthier countries such as Italy, facing a budget showdown with the EU, and the United Kingdom, because of risks of a non-deal Brexit, may also be at risk, the FT said.

https://www.ft.com/content/b5a4cadc-9ee8-11e8-85da-eeb7a9ce36e4