
Turkey’s Lira Crisis Tests Erdogan’s Authoritarian Approach - JumpCrisscross
https://www.nytimes.com/2018/08/13/world/europe/erdogan-turkey-lira-crisis.html
======
graeme
I've been watching the situation in Turkey with astonishment. To appearances,
Erdogan believes that higher interest rates cause inflation. Thus he refuses
to raise them.

This is the physical world equivalent of believing gravity makes things rise.
Or that water pouring in makes a ship float, not sink.

It will be very, very difficult for Turkey unless someone can convince him he
is wrong. And he has created a system where no one can tell him that.

Edit: I seem to be getting downvotes. But this actually is his repeatedly
stated belief. You can find dozens of similar references.

[https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s...](https://www.bloomberg.com/news/articles/2017-12-15/erdogan-s-40-year-
old-theory-of-inflation-scores-a-win-in-turkey)

~~~
JumpCrisscross
> _Erdogan believes that higher interest rates cause inflation_

Is there evidence he actually believes this?

~~~
Analemma_
What does it matter? With authoritarian populist leaders, what they "actually
believe" isn't even a meaningful concept. A defining characteristic of
authoritarianism is that truth gets fuzzy in order to serve the interests of
the state, and the defining characteristic of populism is to just go with
whatever pleases the mob. So when you combine the two, you get policy made up
on the spot but enforced with religious fervor, which is what's happening
here.

I mean, take Trump: he's a raging ball of id who just yells whatever pops into
his head at random and agrees with whoever spoke to him last. What he
"actually believes" is probably, to use programming jargon, undefined.

~~~
JumpCrisscross
> _What does it matter?_

My assumption was that he's keeping rates low to avoid raising interest costs
for his government and cronies. But it might be that he actually just
misunderstands economics and everyone is too scared to tell him so.

~~~
whatok
My personal belief is that he is well-aware but would rather scapegoat
external "forces". The problem is that you can't really keep that ball in the
air long enough to fix the underlying problem.

------
Sol-
>that Turkey will not climb out of its hole until the country enacts major
structural reforms that would undo many of Mr. Erdogan’s constraints.

>Those would include allowing a free press, an independent judiciary and
returning powers to Parliament

Not that it wouldn't be nice to see those reforms, but it seems like they just
slipped that claim in without much justification. China does fine with an
autocratic system, as do others. I'm just puzzled that this wishful thinking
that economic prosperity is necessarily connected to political freedoms still
persists. Would be nice it if were true, but doesn't seem so.

~~~
adventured
> I'm just puzzled that this wishful thinking that economic prosperity is
> necessarily connected to political freedoms still persists.

That's because it's true in ~188 out of 190 on-going instances where oil isn't
involved. It's fair to say it's true 99% of the time.

US, Canada, Sweden, Finland, Denmark, Ireland, Britain, France, Germany,
Italy, Spain, Japan, South Korea, Australia, New Zealand, Switzerland,
Netherlands, Austria, Belgium, Israel (this list keeps going)

Versus what?

China... and? Maybe Singapore, a tiny island nation.

Denmark has nearly three times the GDP per capita of Saudi Arabia. Czech has
four times the GDP per capita of Iran. That isn't going to change, if anything
the disparity will increase between the liberal order and the authoritarian
order. China is more of a historical one-off than anything.

The US has at least 10x the GDP per capita of Cuba, and six times that of
Russia. South Korea has ~15 times the GDP per capita of North Korea. Australia
has 40 times the GDP per capita of Myanmar.

The economic prosperity rankings are _overwhelmingly_ dominated by nations
that are more politically free than not. The least politically free nations
tend to be hyper impoverished (again, with only a few exceptions for petro
states). As such it's not wishful thinking, it's reality.

~~~
yongjik
Your list contains a large number of West European nations, which had the
fortune of... being in West Europe. I.e., the fact that they are wealthy and
free are more likely explained by past history, rather than one causing the
other.

South Korea is an interesting case: it used to have a worse economy than NK,
started rapid economic expansion while under a corrupt dictator, suffered
through another, and could not really be called a "democratic" country until
90s. So maybe prosperity eventually causes democracy, but it's a slow process.

~~~
ax0ar
>the fact that they are wealthy and free are more likely explained by..

I'd add to this the exploitation of resources throughout the world

------
bkor
Historically, this devaluation is pretty insignificant. It only halved in
value. The current Turkish Lira is actually the second iteration. The first
Turkish Lira at one point had the following value:

    
    
      1995 – 1 U.S. dollar = 45,000 first Turkish lira
      2001 – 1 U.S. dollar = 1,650,000 first Turkish lira
    

That's 36 times less in about 6 years! Eventually they replaced the first
Turkish Lira with the current (second) Turkish Lira. It seems a lot of Turkish
people should still remember the previous Turkish lira. The second Turkish
Lira was the most stable between 2006-2015 or so.. but historically the Lira
has always been hugely unstable.

See
[https://en.wikipedia.org/wiki/Turkish_lira#First_Turkish_lir...](https://en.wikipedia.org/wiki/Turkish_lira#First_Turkish_lira_\(1923%E2%80%932005\))

------
chadmeister
What is most interesting about this is the geopolitics surrounding this. The
US stance appears to be pushing Turkey closer to Russia. [1]

1\.
[https://www.bloomberg.com/view/articles/2018-08-14/erdogan-i...](https://www.bloomberg.com/view/articles/2018-08-14/erdogan-
is-making-some-worrying-new-friends)

~~~
maxxxxx
Turkey has always been the bridge to the Middle East. I think it would be a
big loss to lose that.

~~~
ng12
Well, since 1453.

~~~
maxxxxx
What happened in 1453?

~~~
acchow
The fall of Constantinople.

~~~
maxxxxx
Gotta read up some history it seems. Thanks!

------
coldcode
An economy is like water, you can push it around for a while but eventually
the volume will be too great and it will go where it wants. It doesn't matter
what you believe or desire, an economy or currency or similar will go where
the environment allows it. People (especially authoritarian dictators) always
think they can ignore this. Usually it winds up bad the people who live in
such a country.

------
onetimemanytime
So he's appointed commissars to overrule the professionals
[https://en.wikipedia.org/wiki/Commissar](https://en.wikipedia.org/wiki/Commissar)
What could go wrong?

I was reading that a lot of corporate debt is in USD /EURO. So the loans are a
lot more expensive now and many will go kaput.
[https://www.ft.com/content/0661a1b0-9f08-11e8-85da-
eeb7a9ce3...](https://www.ft.com/content/0661a1b0-9f08-11e8-85da-eeb7a9ce36e4)

" _Last month Turk Telekom, a big telecoms group, announced a second-quarter
loss of almost a billion lira as it was hit by a surge in the cost of
financing foreign-currency debt.

And, then, in the space of a week, the lira lost a fifth of its value against
the US dollar, as Turkey entered a full-blown currency crisis.

The slide has sorely hurt businesses that for years took advantage of longer
maturities and lower interest rates to borrow in euros and dollars rather than
Turkish lira."_

~~~
whatok
Turkey has a lot of sov as well as corporate debt in USD and EUR. They also
import a ton of oil which has more or less only gone up on the year.

------
pknerd
This situation could happen to any country. Since I am no financial/economic
expert, I would like to learn from the community how this all happened? How a
country A can destabilize country B's currency/economy so easily? I know
Turkey has external debt but so on the US.

~~~
JumpCrisscross
> _how this all happened?_

Turkey elected a strongman. He used the state to buttress his own power. That
made necessary, but politically-difficult decisions (like raising interest
rates), impossible.

> _Turkey has external debt but so on the US_

Few Americans borrow in non-U.S. dollars. And the U.S. government only borrows
in U.S. dollars. This works because the dollar works. Investors and exporters
trust it to retain value.

The lira, on the other hand, isn't trusted. So when the Turkish government
wants to borrow money, investors aren't willing to accept being paid back in
lira. (And the government, in any case, needs hard currency to pay for
imports. Because the people selling Turkey imports don't want to be paid in
lira, either.)

~~~
pknerd
> Few Americans borrow in non-U.S. dollars. And the U.S

This is interesting. But, the world is not all about US. My question is, can
Trump do same with some European country?

~~~
ax0ar
In the world's current economic situation it pretty much is mostly all about
the U.S. and the dollar. Most of the global trade is conducted with the dollar
and he can mess up other currencies in a similar way.

~~~
pknerd
Should we call Trump an evil genius?

Why did not previous Presidents think of it and opted for traditional war?
This trade war is more safer for Americans.

~~~
ax0ar
I wouldn't call him a genius, he's quite the opposite.

>why didn't previous presidents think of it

They probably did, but were likely smart enough to figure out that a trade war
with the world will trigger a backlash that the US won't be able to handle.
The world will seek an alternative to the US dollar, and I think it will
happen very soon if Trump continues doing what he does.

~~~
pknerd
guess you are right.

US Chamber of Commerce after Turkey imposition of the tariff on US goods.

[https://www.cnbc.com/video/2018/07/03/us-chamber-of-
commerce...](https://www.cnbc.com/video/2018/07/03/us-chamber-of-commerce-
campaign-against-trumps-tariffs.html)

------
pjc50
It would be ironic if Turkey ended up in a similar financial crisis situation
to Greece. Although the mechanics are different since they have their own
currency.

~~~
enraged_camel
Mechanics are _totally_ different. Greece defaulted on government debt. Turkey
is mostly struggling with private sector debt.

The volumes of debt are also very different. Greece had a LOT more debt when
they defaulted.

~~~
gokhan
We can also create a crisis caused by government's debt equally well, see
Turkey's 2001 crisis:

[https://en.wikipedia.org/wiki/2001_Turkish_economic_crisis](https://en.wikipedia.org/wiki/2001_Turkish_economic_crisis)

------
tehlike
THere's one fact that people seem to have forgotten: 1USD=1.5TRY back in 2002.
Turkey has an inflation that's about 10% (reported, let's go with that). 1.1 ^
16 * 1.5 = 6.8 - meaning 6.8TRY would be equivalent to 2002's dollar. US
economy and dollar gained more strength in the meantime.

6.8 try/usd is not crazy. The previous exchange rate probably was.

~~~
jules
A lot of debt is held in foreign currency and imports just got a whole lot
more expensive in a handful of days. This is a serious blow, especially if
Turks lose confidence in the lira. I can assure you that Erdogan is getting
nervous. He can talk about boycotting Apple and buying Samsung all he wants;
both phones are now unaffordable for a lot of people who were planning to buy
one. Those people aren't going to be terribly happy about Erdogan's flirt with
Russian missile systems.

~~~
tehlike
For sure. Exchange rate fluctuation of this magnitude is never good. I know
companies that worked with dollars are finding excuses not to bill their
clients because of exchange rate volatility (if they bill now, and dollar
rises after, the seller/biller would take a loss).

------
dalbasal
I'm not American (or Turkish) so this is somewhat removed.

I think that Turkey's slide in to authoritarianism can be directly traced to
the US' Kissinger-esque approach to diplomacy, particularly in the Middle
East. I'm not saying the alternative would have been better everywhere, or
even in Turkey. But... still.

There is simply no relationship between American friendship and liberalism,
rule of law, protection of minorities or any other "moral" standard. The US
will not downgrade it's relationship or do anything, in response to stealing
an election, commiting a political purge, etc.

Turkey has never been a fully liberal democracy, with basic freedoms held to a
basic democratic standard. Ironically though, at the beginning of erdogan's
premiership it was pretty close, closer than it had been certainly.

As it gradually slipped into its current state, there were no consequences...
not even a scholding.

Oddly, Trump's wildman diplomatic tactics that constantly and hyperbolically
upgrades and degrades the US' "friendship status" other states... the
inconsistency allows for flexibility.

I doubt much liberalism will result directly from Trump (it's just not
something he seems to care for) but the re-write get of the rules... That will
probably be permanent. It may allow the US out of its fairly constrained
diplomatic policies, which (I now believe) are far too consistency and
convention oriented.

Tldr... If the US had started reacting sharply when Erdogan started jailing
journalists, rivals and activists....Turkey might still be a free country.

~~~
whatok
A huge portion of why Turkey is such a mess right now is the United States'
Syria policy. Turkey, by mere proximity, shared an unbalanced burden in the
Syria fallout and the United States did nothing to aid them. This allowed
Erdogan to seize more power and encouraged him to grow closer to China and
Russia.

~~~
dalbasal
I don't think the Syrian civil war is the US' doing. They are involved, but
not more than Turkey itself.

In any case, the US _did_ make (also in Iraq) an enormous concession to
Turkey. Iraqi Kurdistan was not allowed to declare independence, despite
clearly needing it and being an extremely loyal, reliable and effective US
ally, something that cannot be said of any others in the ME lately. Syrian
Kurdistan had to basically surrender to Assad to avoid a Turkish Attack.
Again, the US totally had-faced a genuine, ideological ally... as a favor to
Turkey.

These have been Turkey's primary concerns in those wars, and they got what
they wanted.

My point is that they shouldn't have. The US is a powerful country. They were
in a position to make these decisions ideologically, rather than
transactionally.

I think Turkey's NATO membership should have come into question, when Erdogan
clearly stepped back from "free/democratic."

~~~
yalph
How could you say that US involvement in Syria was not more than Turkey’ when
anything and everything in the region is dictated by the US? So breaking apart
a country and not letting the ethnic groups not form independent countries is
a great concession to you?

------
janandonly
Sad to see economies fail in the same way time and again. Simple lessons to
prevent this: 1\. Only take on debt or issue bonds in your own currency. 2\.
Only borrow for short-term extra spending (like a disaster). 3\. Every couple
of years _all_ debt should be annulled. That way people don't walk around with
a mountain of debt. And companies only give loans for what they can reasonably
expect to be paid back within said ”sabbat year”. 4\. Need more money than you
earn? Chance spending habits instead of ”plastering over” problems by taking
on more debt. 5\. Taxation should be fair and easy to understand. 6\. All
expenditure should be fair and easy to understand.

~~~
wrong_variable
Its not at all simple as that ...

Taking on debt in your currency means you won't be able to access
international markets, and international market are not just going to allow
you to sell bonds in your currency without an extremely steep interest
payment, some players won't even invest due to the enormous risk they would be
taking.

Your point 3,4 makes it seem you are unaware of how money or wealth works -
would you like it if every three years the govt just striped you of your
ownership of your house ? All debt is someone else's saving, introducing a
”sabbat year” on the debt side also reflects on the ownership side - it would
not be possible to own anything long term.

Your point 4 would mean companies like Amazon, FB, Google would literally be
impossible to create. Its very hard to distinguish between good and bad debt (
its the reason analysts are paid so well ).

I agree with your last two points.

------
baxtr
The whole thing reminds me of a discussion I had around agile development and
then the Cynefin framework came up [1]. At first I was skeptical but over time
I realized the value of it.

Anyways, I have the feeling Erdogan thinks that the whole “economy thing” is
at most complicated not complex and treats it like that. Good luck with that
approach.

[1]
[https://en.wikipedia.org/wiki/Cynefin_framework](https://en.wikipedia.org/wiki/Cynefin_framework)

~~~
jwhitlark
I became much more forgiving about political structures since I started
working with distributed system. The ways things go wrong in distributed
systems even before you inject free will is staggering.

The link has worthwhile content, and was entertaining. Thanks!

