Analysis: ‘Whichever way he turns, Mehmet Şimşek will lose’

Phillip Inman, from the Observer, comments:

Turkey‘s finance minister, Mehmet Simsek, understands the two-faced nature of western capitalism. A former banker with Merrill Lynch, based in London, he has seen the way investment banks work. One minute you are feted and showered with bonuses; the next you are being shown the exit.

It can be the same for a developing country. At one moment it’s the darling of international investors; the next it finds itself standing over a trapdoor to the lower economic regions.

Only a few years ago Turkey’s economy was growing at 10% a year and predicted to become a Middle East powerhouse. While Syria and the rest of the region struggled with internal strife, it was Turkey, with its educated young population, that would accelerate into the first rank of countries.

Even after the financial crash, money poured into Istanbul, and into the many enterprise zones set up by Simsek and his predecessors to lure US and European manufacturers. Then the tide turned.

Since 2011 the country has been struggling. The currency lost 25% of its value as the prospect of higher interest rates in the US triggered a flight of capital back to New York. A corruption scandal that has reached as far as the prime minister’s office has not helped settle the nerves of investors.

Simsek, a dapper Europhile with a calm public manner, has gambled that raising Turkey’s base rate to 10% will avoid a further exodus of funds. He has ruled out anything more draconian, for fear of spooking the markets.

Last week he denied any plans to introduce capital controls, adding that Turkey would in effect bend over backwards to please western investors by further liberalising its financial sector.

Turkey would leave its floating exchange rate system in place, he said, though prime minister Recep Tayyip Erdogan, a more volatile character, who is facing a general election in a few months, heightened anxieties when he referred to a possible “out of the ordinary” economic package.

But plenty of analysts believe that whichever way he turns, Simsek will lose. Stephen Jen of currency hedge fund SLJ Macro Partners said: “Many of these emerging-market economies [including Turkey] are cornered: they have to choose between defending the exchange rate, fighting inflation and supporting growth. Sudden stops in capital inflows tend to force countries to face lose-lose situations.”

India, Indonesia, South Africa and Brazil, which were grouped with Turkey recently as “the Fragile Five” by Morgan Stanley, are in the same boat, as are Argentina and Russia. Each has its own special circumstances, but they share problems that have left investors disenchanted.

Raghuram Rajan, head of India’s central bank, is also keen to liberalise financial markets in order to encourage investment. Like Simsek, he has problems stemming the exodus of funds without jacking up interest rates and killing growth. But his stance is more openly aggressive: he accuses the US and Europe of supporting international monetary co-operation only while they were in recession, and of ditching it now their recoveries are under way.

“International monetary co-operation has broken down,” said Rajan, a former chief economist at the International Monetary Fund. “Industrial countries have to play a part in restoring that [co-operation between central banks], and they can’t wash their hands and say, we’ll do what we need to and you do the adjustment.”

His chief bugbear is the prospect of higher US interest rates making the dollar more attractive and pulling more cash out of India. The same goes for the others in the fragile five. Their problem is that investors, like a huge shoal of hungry fish moving from one feeding ground to another, enjoy visiting emerging markets when the returns are high.

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About yavuzbaydar

Yavuz Baydar has been an award-winning Turkish journalist, whose professional activity spans nearly four decades. In December 2013, Baydar co-founded the independent media platform, P24, Punto24, to monitor the media sector of Turkey, as well as organizing surveys, and training workshops. Baydar wrote opinion columns, in Turkish, liberal daily Ozgur Dusunce and news site Haberdar, and in English, daily Today's Zaman, on domestic and foreign policy issues related to Turkey, and media matters, until all had to cease publications due to growing political oppression. Currently, he writes regular chronicles for Die Süddeutsche Zeitung, and opinion columns for the Arab Weekly, as well as analysis for Index on Censorship. Baydar blogs with the Huffington Post, sharing his his analysis and views on Turkish politics, the Middle East, Balkans, Europe, U.S-Turkish relations, human rights, free speech, press freedom, history, etc. His opinion articles appeared at the New York Times, the Guardian, El Pais, Svenska Dagbladet, and Al Jazeera English online. Turkey’s first news ombudsman, beginning at Milliyet daily in 1999, Baydar worked in the same role as reader representative until 2014. His work included reader complaints with content, and commentary on media ethics. Working in a tough professional climate had its costs: he was twice forced to leave his job, after his self-critical columns on journalistic flaws and fabricated news stories. Baydar worked as producer and news presenter in Swedish Radio &TV Corp. (SR) Stockholm, Sweden between 1979-1991; as correspondent for Scandinavia and Baltics for Turkish daily Cumhuriyet between 1980-1992, and the BBC World Service, in early 1990's. Returning to Turkey in 1994, he worked as reporter and ediytor for various outlets in print, as well as hosting debate porogrammes in public and private TV channels. Baydar studied informatics, cybernetics and, later, had his journalism ediucatiob in the University of Stockholm. Baydar served as president of the U.S. based International Organizaton of News Ombudsmen (ONO) in 2003. He was a Knight-Wallace Fellow at University of Michigan in 2004. Baydar was given the Special Award of the European Press Prize (EPP), for 'excellence in journalism', along with the Guardian and Der Spiegel in 2014. He won the Umbria Journalism Award in March 2014 and Caravella/Mare Nostrum Prize in 2015; both in Italy. Baydar completed an extensive research on self-censorship, corruption in media, and growing threats over journalism in Turkey as a Shorenstein Fellow at the Kennedy School of Government at Harvard.
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