Erdogan Drives Investors Out of Turkey by Playing Central Banker

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Turkey’s President, Recep Tayyip Erdogan has spooked investors in Turkey by trying to dictate policy to the country’s central bank. With the currency plummeting, his meddling in the central bank process is only making things worse. The Wall Street Journal’s editorial board writes:

Turkey’s lira fell as much as 5% on Wednesday, and it’s lost more than a fifth of its value this year, adding to a long decline that is forcing extreme monetary measures to compensate. Much of the blame lies with President Recep Tayyip Erdogan, as Turkey has been running a current-account deficit that is on trend to exceed 6% of GDP. Turkey has been growing rapidly but the growth has been heavily financed by dollar-denominated investment.

Meanwhile, Mr. Erdogan has been beating the central bank like it’s Syria’s Bashar Assad. In Ankara this month, he called high interest rates “both the mother and father of all evils.” Investors took this to mean he’s exerting political control over Turkey’s central bank even as inflation has reached nearly 11%.

With capital fleeing, Mr. Erdogan is getting higher interest rates in any case as the central bank tries to stem the lira panic. On Wednesday the bank lifted a key lending rate to 16.5% from 13.5%. Consider this the price of the lost credibility of Turkish institutions under Mr. Erdogan’s increasingly authoritarian rule. Dictators are rarely good economic managers because they want to dictate fiscal and monetary policy as much as they do every political choice.

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E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.