Jul 10 2019

Turkey is heading for economic collapse, $85 billion asset manager says

Turkey’s economy faces ruin because its government is likely to double down on wrongful policies, Ashmore Group, which manages $85 billion in emerging market assets, told Bloomberg.

President Recep Tayyip Erdoğan sacked Central Bank Governor Murat Çetinkaya at the weekend, the latest of several decisions that have rattled financial markets. Others have included buying Russian S-400 missiles, the detention of a U.S. pastor, dissuading Turks from buying foreign exchange, using state banks for cheap lending and insisting higher interest rates cause inflation.

“The problem is that U-turning back to good policies has very big upfront political costs,” Ashmore’s head of research Jan Dehn told Bloomberg in emailed comments published on Wednesday. "The longer he [Erdoğan] delays, the bigger the cost, which is why politicians who go down the heterodox route rarely change tack and they almost always end in crisis.”

As the economic situation worsens, Erdoğan is likely to introduce capital controls, nationalisation and other policies to stop the non-government sector from protecting its own property, Dehn said. Ashmore is a specialist in investing in emerging markets.

Turkey says that it follows free market principles and will not impose controls on the flow of foreign exchange.

The Turkish economy is reeling from a currency crisis last year sparked by concerns over economic overheating and the detention of U.S. pastor Andrew Brunson on terrorism charges. Erdoğan is now seeking to control interest rate policy, has widened the budget deficit three-fold and is risking U.S. economic sanctions for purchasing the Russian S-400 air defence system.

Turkey’s government is making the mistake of addressing the symptoms, not the causes of the country’s economic ills because it does not want to take the otherwise tough measures required, Dehn said, according to Bloomberg.

“The real problems meanwhile are ignored and get worse,” he said. “They include bad monetary policies, increasing interventionism, failure to develop local financing markets, too low savings rates and bad foreign policies.”