This week the Turkish Lira reached a new low against an increasingly bullish Dollar in a development that has caused panic over the state of the Turkish economy. While the Lira stabilised after the Central Bank of the Republic of Turkey raised interest rates, Ankara has correctly been careful to keep borrowing costs low in-line with President Erdogan’s pro-small business/pro-high employment policies. In so far as this is the case, Turkish economic experts must now be careful not to fall into the trap of overcompensating for a weak Lira with overly high interest hikes which could damage what continues to be an incredibly dynamic and rapidly growing Turkish economy.
The fact of the matter is that the low Lira is only a problem for currency speculators and for Turkish international purchasing power. For every other economic indicator from exports to job creation and economy growth the low Lira is actually a good thing so long as inflation is brought mildly under control over the next several months.
In reality, Turkey’s economy is following a classical Keynesian model where inflation accompanies rapid economic growth, high employment and increased wages. The only danger is if this healthy Keynesian inflation becomes ‘stagflation’. Stagflation is the phenomenon first observed in the late 1960s and early 1970s when major western economies ended up falling victim to international price increases which when combined with poor economic growth domestically led the combination of economic stagnation combined with rapid inflation.
Even with today’s energy prices being inflated due to artificial price controls from OPCE and wild speculation in the energy markets due to an allegedly volatile political situation in the Middle East (in reality the Middle East’s conflicts are far more predictable today than they were as recently as 3 years ago), the situation in Turkey is not only positive when looked at through aggregate indications, but it is healthier than the main economies in Europe.
The following facts about the booming Turkish economy are being almost completely ignored in the mad rush to encourage speculation against the Lira in the western financial media:
–Turkey’s economy continues to expand and develop with a 7.4% growth rate that is outpacing just about every major western economy and is in-league with many so-called “Asian tigers”.
–Overall wages are at an all time high including both in the crucial manufacturing sector and among those on minimum wage, those in high skilled jobs and those in low skilled jobs.
–Employment remains incredibly healthy across the board as it has been through most of the Erdogan years.
Therefore, there is little for Turkey to panic about so long as economic growth can be sustained. Furthermore, a low Lira is actually a boon to investment as it means that those injecting money into the Turkish economy are now able to get better value for money, assuming the Lira eventually picks up which in the medium term it undoubtedly will. If anything, Turkey’s multipolar partners should be looking to invest more in the country as in the long term, a stabilised Lira when combined with a consistently growing economy will offer potential investors excellent long-term returns. This is especially true of Russia, China and also Iran which could benefit greatly from taking the money currently being wasted in the Arab world and putting it into Turkey.
While inflation has long been an issue among many eastern Mediterranean economies, the primary reason for this was because this was typically married to stagnant growth rates and low productivity. In Turkey, the opposite is the case – it is the rapid growth rate, low borrowing costs which have been an asset to Turkey’s thriving small and medium sized business community and wage growth that has led to inflation. Moreover though, with Turkey’s Presidential election set for 24 June, the powerful western financial press have been talking Turkey’s economic potential down and this has intentionally set-off a chain reaction of European and American currency speculators distancing themselves from Turkey for fears that a “bubble is about to burst”.
Far from Turkey sitting on an asset bubble that Europe and the US sat on in the early 2000s before it eventually burst in 2008, Turkey is implementing a combination of a high-growth Asian style productivity combined with a classical Keynesian understanding of the relationship between inflation and growth. Therefore, when taken in totality, the disinformation war being waged on Turkey from the west has now pivoted from the political and security spheres into the sphere of economics and in particular, to Turkey’s monetary policy.
One should not at all be surprised that the same media outlets slandering Turkey for its support for Palestine, its partnerships with China, Russia, Iran and Sudan, its security operations against PKK and FETO terrorists and Turkey’s unwillingness to allow the US to politically colonise the Balkans, are now waging a speculation war against the Lira.
In economics, words can be even more damaging than in the spheres of traditional military conflict. This is why it is all the more important for Turkey to state the realities of the Turkish economy loudly and clearly so as to keep investments coming in at a time when western economic advisers have blindly followed their political leaders into a hybrid war against Turkey to punish Ankara not for its failures but for its monumental successes.