Heading Toward The Inescapable

Future analyses will place particular emphasis on developments in the last month of this year when they try to figure out what factors led to the collapse of the Turkish economy. An unbridled depreciation of the Turkish lira, coupled with contamination from the woes of the Russian economy, is noteworthy to mention.
A police raid of the Zaman daily and Samanyolu TV headquarters and the detention of the chief executives of these two critical media outlets marked a new zenith to the government's authoritarianism and further deviation from the ideals of the EU. Falling confidence in Turkish markets, stagnation, lethargic industrial activity, upward unemployment, exorbitant individual and corporate debt and so on are all realities of the day.
Turkey's Credit Default Swap (CDS) premiums rose to 220 points from 160 in two weeks in December. The loss in trade due to the turbulence in Russia is estimated to have reached $6 billion. The savings from falling oil prices are offset by a rising currency rate. The consumer confidence index value fell by nearly 6 percent in the two months since October. The industrial production index is heading downward and is estimated to be 1.9 percent less in the last quarter than in the third quarter.
The number of people who defaulted on their credit cards and individual loans since 2009 rose to 3.7 million in November -- a number that has displayed an increasing trend recently. The lira has seen historic high levels, above 2.41 against the dollar. The most recent unemployment rate marked the worst in four years with 10.2 percent and the jobless rate of young people was particularly worrying. These are only a few readings of some of the main indicators that were all released in December, and I have not cherry-picked them to serve my cause.
It is unfortunate to see and to say that the government is now running fast downhill on a bumpy road while pulling the economy like an angry centaur hitched to a misaligned carriage. When this mad creature jumps off the precipice ahead headfirst, we will also suffer, as we are in this cart, too. I don't think anybody will jump for joy at losing their wealth due to the fecklessness of the rulers of the country. And this rising currency means that the money in our pockets is melting away.
This author has frequently warned the government about the significance of the commitment to democratic values and the rule of law, and that deviations from these basic premises are immediately reflected in the economy. Investors put their money in Turkey for a myriad of reasons and the prospective membership in the EU is an essential factor. President Recep Tayyip Erdoğan's tirade early this week as he told the EU “to mind its own business” and to remain silent in the face of his oppression of the media fueled the worries of investors. Erdoğan also hinted that Turkey may sever ties with the EU if it continues to tell the truth in a still-small voice, like the conscience of a man with a corrupt soul.
What do all these developments mean for the Turkish economy? I questioned in one of my recent columns whether the central bank will be able to raise interest rates when it needs to. That time is drawing nearer, but the bank seems to be trying to postpone this moment by squeezing liquidity. It is also selling more dollars through daily exchange transactions. The decision to undertake the payments of public hydrocarbon importer companies also had the same effect, by directly stemming the dollar demand in the currency markets by about $2 billion monthly. But all of these are palliative solutions. Russia raised its own benchmark interest by 6.5 percentage points this week to 17 percent, and this belated move failed to yield the intended consequence.
The lira/dollar rate bounced back from the historic height after the US Federal Reserve (Fed) partially cleared the ambiguity surrounding the future course of its interest rate policy in its latest meeting on Wednesday and our central bank heaved a sigh of relief. It is only a temporary relief, though. Fed Chair Janet Yellen alluded that rate hikes are out of the question for at least the next two meetings, and also indicated that the Fed does not really care much about the repercussions of its decisions on other economies. She said the Fed's patience has limits. So when the time is right, maybe after June, a 25 basis point increase is likely, and more will follow. That was what the Fed did in March 2004.
The expectations were that a rate increase would take place in the second half of the year, and what Yellen suggested means rates will start rising in the second half. So nothing has changed actually, and hence I see this optimism as false.

İBRAHİM TÜRKMEN (Cihan/Today's Zaman)