2023-11-06 11:01 Lianhe News Network Chen Wanyu After Turkey’s new central bank governor Irkan took office, he made a U-turn in interest rate policy. At the end of August, he even raised interest rates to 25%…
The Turkish government replaced the central bank governor in June this year, and 43-year-old Hafize Gaye Erkan took over this important responsibility.Alcon was in the U.S.Daiichi Republic Bank(First Republic Bank, also translated as First Trust Bank) as co-chief executive officer, and also worked atGoldman Sachs Group(Goldman Sachs) as managing director. In addition to having a rich background in the U.S. financial industry, Alkon is also Turkey’s first female central bank president. Her appointment also sent a message to the outside world: Turkey’s long-standing “low-interest policy” may make a U-turn.
Sure enough, two weeks after Alcorn took office, the central bank announced that it would raise interest rates from 8.5% to 15%. Two months later, at the end of August, it increased it to 25%. The lira also surged 6% as the central bank raised interest rates more than market expectations. At that time, many Turkish economic commentators believed that the central bank’s monetary policy was finally on the “right path,” but whether the policy and strength of the rate hikes could be sustained was the main factor in whether the domestic fight against inflation could be effective. In September, the central bank maintained its decision to raise interest rates as expected, but slowed down the rate increase. The interest rate was only raised from 25% to 30%. Since the rate increase was within market expectations, the lira not only failed to improve, but actually Keep going down slowly.
Turkey’s interest rate policy has made a U-turn, which makes people wonder why Turkish President Recep Tayyip Erdogan, who originally insisted on a low-interest policy and believed that “interest is the cause, inflation is the effect, and high interest will lead to high inflation” did not do so this time Interfering in the central bank’s decision-making and not even making any comments on raising interest rates?
The Turkish government replaced the central bank governor in June this year, with Alkane (…
▌The long-term economic policy direction of the Erdogan government
In fact, Türkiye’s ruling party——justice and development party(AKP) The red line for economic policy is not inflation, but “the ratio of fiscal deficit to GDP” and “economic growth rate.” These two important economic indicators are also the main factors affecting interest policy.
The first is the ratio of fiscal deficit to GDP. Since the AKP came to power in 2002, the ratio in 1993 has beenTreaty of Maastrichtand 1997Stability and Growth PactThe “annual fiscal deficit of each country shall not exceed 3% of GDP” stipulated in the document is regarded as a criterion for formulating economic policies. This is related to Turkey’s economic crisis in 2001 – the fuse of Turkey’s economic crisis in 2001 was the government’s huge fiscal deficit. .
At that time, Turkey failed to control the high-inflation economic market, and a bank run crisis occurred. Coupled with the domestic political instability at the time, the economic crisis snowballed. The AKP, which has learned the lessons of history, has maintained the government fiscal deficit within 3% since it came to power in 2002 until now, except for 2009 and 2020, and it has been reduced to 1% in 2022. The Turkish government believes that controlling the ratio of fiscal deficit to GDP can maintain the normal operation of the financial system. Only when the financial system operates normally can the occurrence of economic crisis be avoided.
Another criterion is the economic growth rate. AKP believes that when the economic growth rate is maintained at 5%, the domestic boom can be maintained. If companies continue to invest, the unemployment rate will not rise but fall, which will help maintain economic stability and will also benefit every election campaign of the AKP. The AKP’s report card in this part is also very impressive. The average economic growth rate during the more than 20 years in power has remained at around 5%.
So how does the Turkish government maintain the economic growth rate above 5%? The fastest way is to create a “negative interest rate” market. In a market where interest rates are lower than inflation, people will not choose to save, because the interest on savings cannot keep up with the speed of inflation, and they will become poorer as they save. In this case, people will turn up the leverage of borrowing and borrow money from the bank to invest, so that the currency in their hands can be preserved through investment, or they will borrow money in the future because they expect that commodity prices will continue to rise due to inflation. Increase current consumption; when consumption increases, market production will increase. Companies earn money from the market as people expand consumption, and they can use this money to continue investing in production.
In the absence of hot money from foreign investment coming in, this is the way Turkey has always used to stimulate the domestic economy. This also echoes President Erdogan’s theory that only low interest rates can save the economy.
In a market with “negative interest rates”, people will fully activate their borrowing leverage and borrow money from banks to invest, or because of expected commodity prices… In the absence of hot money from foreign investment coming in, Turkey has been using “negative interest rates” market to stimulate the domestic economy. picture…
▌Why change the policy and move toward raising interest rates?
So why does the central bank no longer continue its “low-interest policy”? This is related to the Interest Guarantee Account Policy (KKM). The Interest Guarantee Account Policy is an economic policy launched at the end of December 2021. At that time, the government needed to use low interest rates to stimulate the market economy, but it could not allow the lira currency value to plummet, so it launched the Interest Guarantee Account. The policy encourages people to deposit lira into bank fixed deposits, and the government will guarantee exchange losses. After the fixed deposit expires, if the principal plus interest of the fixed deposit is less than the corresponding US dollar amount when the people deposit, the government will Make up the difference in between.
In other words, the lira placed in a fixed deposit will not depreciate due to exchange rate fluctuations. As of August this year, the government has spent approximately 213 billion liras (approximately NT$255.6 billion) on the interest guarantee account policy. This expenditure can cover the minimum salary of 1.6 million people in Turkey for an entire year. In order to reduce the government’s huge fiscal expenditure on KKM, the central bank decided to end the KKM policy in stages.
Before the central bank announced in August this year that it would raise interest rates to 25%, the central bankexpressKKM’s fixed depositor interest rate will no longer be guaranteed, but in order not to cause a large number of fixed depositors to cancel their contracts and transfer US dollars, the market needs an attractive bank interest rate, which is the result of a subsequent sharp increase in interest rates.
Among all economic policies, the Turkish government is actually well aware that if it wants to fundamentally reduce inflation and stabilize the currency value, it still needs to rely on stimulation from foreign investment. However, the Turkish market, which was originally weak, has been affected by the U.S. interest rate hike this year. Foreign direct investment from January to July fell by 26.7% compared with the same period last year. How to attract continued foreign investment is the focus of the Turkish government’s economic policy.
In addition, it can be seen from the proportion of foreign investment in various countries that Turkey is overly dependent on investment funds from Europe and the United States. Therefore, increasing investment from Middle Eastern countries and Asian countries is also an important goal of foreign policy in the Middle East and Asia.
The Turkish government originally launched the Interest Guaranteed Account (KKM) policy at the end of 2021 to encourage people to deposit lira in banks… In fact, the Turkish government knows that if it wants to fundamentally reduce inflation and stabilize the currency value, it still needs to be stimulated by foreign investment. Pictured…
▌Efforts to attract foreign investment
In order to increase investment from the Middle East, Erdogan visited the Gulf countries in July and August this year, visiting Saudi Arabia, Qatar and the United Arab Emirates. This “trip in search of hot money” attracted much attention from domestic media.
Before this visit, the Gulf countries’ direct investment in Turkey totaled about 10 billion US dollars, mainly from Saudi Arabia and the United Arab Emirates. This visit was also mainly aimed at completing the agreements reached with Saudi Arabia and the United Arab Emirates. The first stop of Erdogan’s visit was to Saudi Arabia, where he met with Saudi Crown Prince Mohammed bin Salman (generally referred to as MBS in Western media). Erdogan also presented a Turkish-made electric car——TOGGAs a welcome gift, after the visit, it was also announced that it had signed five agreements with Saudi Arabia, including the largest drone export agreement in Turkey’s history, but the amount was not announced to the public. A trade agreement worth approximately US$50 billion was signed with the United Arab Emirates, but the details have not been announced to the public.
Since the details of the cooperation have not been made public, some public opinion believes that the results are lower than expected, so the Turkish government is unwilling to make them public; in terms of results, Erdogan’s visit to the Gulf countries failed to strengthen market confidence as much as he hoped, but he is looking for hot money investment The policy still succeeded in gaining widespread support from society.
In addition to strengthening cooperation with Middle Eastern countries, Turkey has actively contacted China and South Korea on various infrastructure constructions. Chinese Foreign Minister Wang Yi visited Turkey in July this year. During the meeting, in addition to repeating the old talk of the “One Belt, One Road” initiative, he also stated that he would continue to hold talks with Turkey on a third nuclear energy plant. Turkey’s first and second nuclear power plants are project projects in cooperation with Russia. The third nuclear power plant will provide 5GW of power generation capacity after completion. If China wins this project, it will be China’s largest overseas investment project.
Erdogan visited the Gulf countries this year, and his first stop was Saudi Arabia, where he met with Crown Prince MBS.Photo/Reuters
Returning to Turkey’s overall economy, per capita GDP is estimated to be US$12,415 this year, an increase of 9.5% compared to 2020. However, this year’s economic growth rate is expected to be revised down to 4.4%, and the official expected inflation rate this year is also still the same. at a high of 65%.
For companies, the increase in borrowing costs caused by the central bank’s interest rate hike will reduce corporate investment and personnel recruitment. People also expect that there will be a wave of personnel reductions in the job market next year. Turkey’s real estate market, which began to erupt in 2021, has also begun to cool down. With the government significantly restricting people’s loan quotas, transaction volume in the first six months of this year fell by 7% compared with the same period last year.
The outside world believes that before the local chief election in March next year, the government will try its best to suppress inflation and the U.S. dollar exchange rate in order to get votes. However, the Turkish Central Bank has made a pessimistic forecast for the lira exchange rate in 2024, believing that the lira will depreciate by more than 50 against the U.S. dollar. %, although the government continues to increase basic wages, the real income of the salaried class continues to shrink, leaving the people unable to withstand the coming recession. Whether Turkey can successfully overcome the three-in-one economic issue of inflation, economic growth and devaluation depends on the government’s comprehensive decision-making.
Erdogan attended the opening ceremony of Turkey’s domestic electric vehicle TOGG factory. Domestic electric vehicles have always been the focus of Erdogan and the ruling party… Chen Wanyu
Graduated from National Chengchi University, Department of Chinese Language and Literature, and is currently studying for a master’s degree in international relations at Gazi University in Turkey.Anyone interested in Türkiye is welcome to come“Playing with Turkey” have a look.
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2023-11-06 03:01:12
