Turkiye has been strengthening its economic ties with the BRICS and with Russia in particular over recent months, including signing an agreement with Moscow to become a major natural gas hub for Russian gas exports to European and other nations. Trade in general is booming with Russia, RT reports, noting that, “according to the Turkish Institute of Statistics, Russia was Türkiye’s leading supplier, accounting for nearly 15% of the country’s total imports…. Last year, Türkiye and Russia signed a roadmap for economic cooperation that envisages bringing bilateral trade turnover to $100 billion a year.” In addition, “the two nations have also agreed to introduce the Russian ruble as a settlement currency in bilateral trade, including payment for Russian natural gas supplies.”
In the aftermath of the recent reelection of Turkish President Recep Tayyip Erdogan, all-out Western financial warfare against Turkiye is being threatened, in order to knock them into line.
A lengthy article in the June 4 Financial Times praises newly named Finance Minister Mehmet Simsek as the man to deal with the country’s 40% inflation rate. “The choice of Mehmet Şimşek … increases the likelihood that monetary policy will shift towards a more orthodox direction,” Goldman Sachs said in a note to clients on June 3. Şimşek is a former senior Merrill Lynch bond strategist who argues that Turkiye has to do as it’s told. “Transparency, consistency, predictability and compliance with international norms will be our basic principles in achieving the goal of raising social welfare,” Şimşek said on taking office. “Turkiye has no choice but to return to a rational basis,” he said, adding: “We will prioritize macro financial stability.”
Simsek plans to reverse the policies implemented under Erdogan’s outgoing Finance Minister Nureddin Nebati, which included the “Turkish lira-ization” of the economy: sharply reducing interest rates from 19% to 8.5% by decree, and providing devaluation insurance to lira-deposit holders in the Turkish banking system to prevent massive capital flight from continuing—i.e., the government was picking up the tab for losses due to devaluation. The FT states: “A test will be the extent to which Erdoğan, a longtime opponent of high borrowing costs, will allow interest rates to rise, investors and economists say.”
Goldman Sachs has made it clear what’s in store for Turkiye: They say that over the next year the “overvalued” Turkish lira will have to drop from about TL21 to the dollar to TL28—a 33% devaluation which they intend to impose through financial warfare.
But the FT is not sanguine that they will succeed. “Investors are now waiting to see whether Erdoğan will reshuffle the leadership at the central bank … [and] whether Erdoğan will be willing to stick to the program if the central bank implements the sharp rate rises economists say are needed.” In the past, Erdogan sharply reduced interest rates. “Economists worry a similar situation could occur again if Erdoğan loses patience with an economic adjustment program.”
