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A vendor waits for customers at a food market in Ankara, on Sunday. Turkeys central bank kept a key interest rate unchanged last week, halting a string of rate cuts that triggered a currency crisis and sent prices skyrocketing. President Recep Tayyip Erdogan runs classic stop-go economic policies linked to the political cycle, says Tim Ash. [AP]

President Recep Tayyip Erdogan is jeopardizing Turkeys economy by pursuing an unorthodox economic policy in the hope that he can reverse his slide in the opinion polls and keep his chances of re-election alive ahead of elections in 2023, says Tim Ash, emerging market sovereign strategist at BlueBay Asset Management in London.

Ash describes the conditions that make capital controls on the Turkish economy a possibility. That is, despite the broader momentum of the countrys economy, which is being undermined by Erdogans insistence on rate cuts.

He speaks critically of the poor advisers around the Turkish strongman, while expressing concern that the situation could lead to a Lebanon-style crisis.

Culd you explain in a few words what exactly is happening in the Turkish economy today?

Erdogan runs classic stop-go economic policies linked to the political cycle. Elections are due by June 23. He is struggling in the polls so tries to use economic levers to win popularity. This means typically loose credit policies which buoy import demand and keep the trade and current account deficits elevated, and this puts pressure on the lira. The added complication is his religious views on interest rates he opposes usury. This means the Central Bank of the Republic of Turkey cannot hike policy rates to slow import demand, which means the lira has to adjust weaker to close the external financing gap. The weaker lira just fuels inflation, which erodes competitiveness, and we end up in inflation-devaluation spirals.

How serious is this crisis? What is the danger for the Turkish economy today and how likely is the scenario of capital controls in Turkey?

I worry about a systemic crisis, including capital controls. If you cannot use interest rates and wont go to the International Monetary Fund, the risk is of a hyperinflation-devaluation spiral where people lose confidence in the lira and banks. The only option then is capital controls. An added complication is the CBRT has limited FX reserve buffers and net reserves are heavily negative likely $60-70 billion. So the CBRT is spending other peoples money. When the population realizes that, we might end up in a Lebanon-style crisis and run on banks.

But the Turkish economy is achieving positive growth rates. In fact, it was one of the few countries in the world with growth in 2020, a year of lockdowns. In addition, its public debt is no more than 40% of GDP and its budget deficit appears manageable, at 5% of GDP. So, is it a mixed picture when you analyze the course of the Turkish economy?

No, you are right there are positives and some durability here. The economy is delivering high growth likely 10% in 2021 but at the price of high inflation, 36% in December. So people dont feel better off. It eats away at living standards.

In the meanwhile, is the devaluation of the lira boosting the competitiveness of Turkish exports? Is that a positive side effect of an unorthodox policy?

The lira might be cheap, but not for long with high inflation.

What mistakes is Erdogan making? What is he thinking?

Its his obsession with interest rates. If Turkey had a decent central bank governor, able to set rates independently, I think Turkey could rebound quickly. You mentioned the positives, including low public debt, good demographics, decent banks and corporations, good location and a strong manufacturing base. Entrepreneurial pro-business culture. Turkey should be a success story. But Erdogan has his head in the sand, and has poor advisers around him. There are very few checks and balances to prevent policy mistakes.

What do the markets think of Turkey today? Have they lost confidence in the country or are they still waiting?

I think they are hoping elections bring policy change and orthodox policy. Most foreign investors have reduced positions and are on the sidelines waiting for change.

Would you say that the latest developments undermine Turkeys perspective as a member of the G20? Or does Erdoganomics still have room for experimentation in practice?

Post-Erdogan I think Turkey can bounce back quickly.

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Erdogan has his head in the sand, says analyst on Turkish economy - Kathimerini English Edition

In 2019, the UK halted new export licences for arms sales to Turkey but last December under Boris Johnson's orders they resumed normal licencing. The former Foreign Secretary Dominic Raab raised concerns that weapons might be used during military operations in Syria. Mr Raab condemned Turkeys invasion of Syria, saying: This is not the action we expected from an ally. It is reckless. It is counterproductive and plays straight into the hands of Russia, and indeed the Assad regime." President Recep Tayyip Erdogan, who is gearing up to invade Syria,argues his forces are targeting Kurdish groups who he believes are terrorists, but one of the UK's key allies fighting IS are Kurdish groups.

Mr Raab said once called on Ankara to show maximum restraint and warned that incursions against Kurdish groups undermine international effort to defeat IS.

The British Government said licences will only be issued if the applicant can "incontrovertibly demonstrate that the goods will not be used in northeastern Syria."

It is very unclear how UK trade officials would be able to determine if the arms have been used in Syria or not.

Declassified UK submitted a Freedom of Information request to the Foreign Office and the government refused to provide the information they hold. They said doing so would prejudice relations between the UK and Turkey.

The UKs 2021 Defence Review also says: Turkey is a crucial NATO Ally."

Since 2016, Britain has sold nearly a billion pounds worth of military goods to Turkey and has produced laser targeting systems for F-16 bomber aircraft, other warplane components, and bomb racks and guidance systems for Turkeys Bayraktar-2 drones.

Less than two weeks ago, there was a siege on a prison in northern Syria. IS militants carried out multiple car bombs and it was the largest and most sophisticated attack by IS militants since the group's fall in 2019.

Many believe that the prison attack was coordinated by Turkish forces in a bid to free IS fighters as they have recently stepped up drone attacks in the area. As recently as Tuesday night, Turkish bombing devasted Yazidi a minority group who have continually been persecuted villages.And on Christmas Day 2021, a Turkish drone destroyed a youth movement house which was a violation of a 2019 peace treaty.

In response to the recent attacks, Foreign Secretary Liz Truss said: "Ministers and officials maintain regular contact with the Turkish Government and frequently discuss the situation in Syria."

A report from the Rojava Information Centre reveals that over 40 former ISIS members are being sheltered, funded and protected by Turkey in the occupied regions of Syria.

Since 2018, northeast Syria has been under the control of Turkish backed militias who seized control of the city after a two-month operation to remove Kurdish forces. The UN Commission of Inquiry on Syria found vast evidence of daily rape, sexual violence, harassment and torture in the first half of 2020 in the areas under Turkish control.

Atrocities are mirroring what happened to people at the hands of IS, but people are not being tortured by a militant Islamist group they are under the control of a NATO member.

The UK is Turkeys second-largest export market, and talks are set to begin this year on an even more expansive trade agreement.

France, Germany, the Netherlands and Finland have curbed arms sales to Turkey.

Andrew Smith from the Campaign Against Arms Trade said to The Guardian: "Its time that the rights of people were finally put ahead of arms company profits.

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UK covertly sends arms to Turkey as Erdogan steps up preparations for imminent invasion - Daily Express

Turkish President Recep Tayyip Erdogan delivers his speech at the Albanian Parliament, in Tirana, Albania, January 17, 2022 REUTERS/Florion Goga

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ANKARA, Jan 19 (Reuters) - Turkish President Tayyip Erdogan will visit Ukraine "within a few weeks", his spokesman was quoted as saying by state media on Wednesday, adding Turkey was in contact with it and Russia on resolving mounting tensions.

The West has voiced fears of a possible invasion of Ukraine by tens of thousands of Russian troops gathered near its border. Russia has denied such plans, while Erdogan said on Tuesday the prospect of an invasion was "unrealistic". read more

Speaking at a panel late on Tuesday, Erdogan's spokesman Ibrahim Kalin said Turkey did not want to see any kind of military conflict between the two countries and was fully committed to Ukraine's territorial integrity.

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"This is why I think we need to understand that serious and real dialogue is more urgent than ever," he said. Erdogan was in contact with both Ukrainian President Volodymyr Zelenskiy and Russian President Vladimir Putin on the matter, he said.

"In fact, (Erdogan) has invited them both, if they want, to come to Turkey and hold a meeting to resolve the problems...between them. Turkey is ready to take up any role it can to ease tensions," Kalin said, according to the state-run Anadolu news agency.

NATO member Turkey has good ties with both Kyiv and Moscow, but opposes Russian policies in Syria and Libya, as well as its annexation of the Crimean peninsula in 2014. While forging cooperation with Russia on defence and energy, Ankara has also sold sophisticated drones to Ukraine, angering Moscow.

In November, Erdogan said Turkey was ready to be a mediator in the crisis, an offer that Kyiv welcomed but Moscow dismissed. Ankara has said sanctions on Russia is not a solution. read more

"We will be in close contact with the Russians to prevent any military offensive that would have grave and irreversible consequences," Kalin said. read more

"In such big, long-term geopolitical problems, there are no fast solutions," said Kalin, who is also Erdogan's foreign policy adviser.

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Reporting by Tuvan Gumrukcu; Editing by Jonathan Spicer

Our Standards: The Thomson Reuters Trust Principles.

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Turkey's Erdogan to visit Ukraine 'within weeks' amid crisis - Reuters

When Turkeys President Recep Tayyip Erdogan announced on December 20 it would prop the collapsing Turkish lira with billions of dollars of state funds and a vow that the state would cover foreign exchange losses on some deposits, the move produced electrifying results.

The lira see-sawed back from a historic low 60% down on the US dollar over the year to jump 38% the following day and was up 50% by December 24, marking the currencys strongest week on record. State media went into overdrive, claiming long queues of Turks were changing their dollars back into lira while retailers were supposedly slashing prices.

Erdogan promptly announced that the plan was part of Turkeys economic war of independence, and that in this, we will emerge victorious.

Soon thereafter, his Justice and Development Party (AKP) asked the Supreme Election Council how soon it could call a snap election, sparking speculation that the government was angling to cash in politically on its self-proclaimed economic victory.

Fast forward to the present, there seems precious little evidence that the countrys dire economic realities have significantly changed. Indeed, the new year began with a swathe of new price rises in power, grains, transport, tobacco, alcohol and fuel, adding to the woes of many Turks already struggling with two-decade highs in inflation.

People are really hurting, Erdem Aydin, from consultancy RDM, told Asia Times from Istanbul. Whether you are taking a ferry or walking down the main street, all you hear is people talking about the economy and how to survive another week.

At the same time, the sustainability of the new policy to support the lira has been increasingly called into question as the lira wobbles anew, down 22% over the previous nine trading sessions on January 6.

Large falls in the lira, Jason Tuvey of Capital Economics wrote in a recent note to investors, will now result in an increase in the governments financing needs. The public finances, considered to be a pillar of strength in the past decade or so, now risk crumbling.

Erdogan thus faces a difficult dilemma over whether to call a snap election ahead of its scheduled date in June 2023.

2023 is one full of symbolism for the pro-Islamist Erdogan, as it marks the 100th anniversary of the establishment of the Turkish Republic by its secular founder, Kemal Ataturk.

At the same time, those opposed to Erdogans now 20-year rule are increasingly alarmed that any move towards the ballot box may also go hand-in-hand with a new major crackdown on the opposition.

Recent warnings from Erdogan against street protests and calls from his coalition partners for the prosecution of his potential main rival for the presidency, the mayor of Istanbul, Ibrahim Imamoglu, have reinforced the fears.

The goals of the governments policy decisions are political and makeshift, Murat Somer, professor of political science at Istanbuls Koc University, told Asia Times, and they are made with just one objective in mind: keeping the government in power.

Economic ambush

Erdogans new economic policy hinges on a government promise to guarantee deposits of Turkish lira in the nations banks against fluctuations in the exchange rate.

It came after months of crushing depreciation of the lira, largely sparked by interest rate cuts announced by Turkeys central bank. Given already high inflation in Turkey, these flew in the face of economic orthodoxy, which dictates that interest rates should be hiked, not slashed, to contain galloping prices.

Yet the interest rate cuts also helped keep money in the economy, with Erdogan arguing that they generate growth that in turn will eventually stabilize prices and exchange rates.

Erdogan had also argued that interest rates are also against Islamic principles, and only make the rich richer and the poor, poorer, on December 31.

International currency markets do not see things the same way, however, and by December 19, the day before the new policy was announced, the lira had hit historic lows forcing up prices, as Turkeys economy relies heavily on imports usually priced in dollars or euros.

Erdogans announcement of the guarantee was also accompanied by a major intervention by the central bank and two of the countrys three state banks Vakif Bank and Halkbank that are controlled by Turkeys national wealth fund.

The CEO of Turkeys wealth fund is Erdogan himself, says Aydin.

Somewhere between US$5.5-$5.7 billion of the central banks foreign currency reserves were depleted in the two days after Erdogans economic war policy was announced, along with around $3 billion from Vakif Bank and Halkbank, according to Reuters.

This appears to have been what reversed the liras decline, with few ordinary Turks actually taking advantage of the guarantee and changing their dollars into lira to put into the banks, as government officials claimed.

At the same time, Erdogans policy is not really new. A similar scheme was run by the Turkish government back in the 1970s but was then quickly abandoned. That was because it heaped pressure on Turkeys Treasury to follow through with guarantees when the lira kept depreciating.

If the lira suffers large falls, the Treasury would be on the line for a large bill, says Tuvey.

This thus ties the fortunes of the lira much more closely to public finances. These are relatively robust at present Turkeys public debt is only around 40% of GDP but sharp falls could drain coffers rapidly, analysts say.

This, in turn, is giving rise to a clear political dilemma for Erdogan.

With the economic policies and dysfunctional government system it has locked itself into, says Somer, if it waits for an election in 2023, things will be even worse.

Yet if Erdogan takes the country to the polls earlier, he will have to contend with a disgruntled population suffering major price hikes and a visible erosion in its standard of living.

While officially annual inflation is at 36%, independent survey outfit ENAGrup said on January 3 that the real annual figure was 82.81%. The new year saw electricity rates for businesses rise 125%, while households faced power price hikes of 50%.

Grain prices rose 25%, train tickets were up 20%-36%, Istanbul bus fares increased 36% and taxi prices hiked by around 33%. Seeking solace in cigarettes and alcohol also became more expensive, with a special consumption tax on them increasing by 47% on New Years Day.

A rock and a hard place

Caught between a rock and a hard place, Erdogan and his allies seem to be turning on the opposition.

On January 4, Turkeys parliament announced the start of proceedings to lift immunity on 24 members of the countrys third-largest party, the pro-Kurdish Peoples Democracy Party (HDP), enabling their further prosecution. Another case to shut down the HDP entirely continues while its head, Selahattin Demirtas, has been imprisoned without trial for five years.

An Interior Ministry investigation has also been launched into the Istanbul municipality headed by Mayor Imamoglu. Meanwhile, Devlet Bahceli, the head of Erdogans main coalition partner, the far-right National Movement Party (MHP), is calling for him to be dismissed if the investigation proves links to terrorism amongst municipal employees.

Metin Gurcan, a key figure in the leadership of DEVA, a center-right party headed by former AKP economy czar Ali Babacan, now faces 20 years in jail for espionage, a charge he strongly denies.

On December 31, Erdogan himself characterized the leader of the main opposition Republican Peoples Party (CHP), Kemal Kilicdaroglu, as a bandit creating chaos and disorder.

Erdogan also threatened to meet any street demonstrations against his government with a similarly violent response to the crackdown that followed a failed July 2016 coup, which entailed mass arrests and forced media shutdowns.

This is how you hold your own constituency hostage, says Somer. You increase anxiety, fear, and people start looking for a safe harbor, says Somer, even an authoritarian one, as opposed to a more uncertain, democratic one.

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Erdogan playing with economic and political fire - Asia Times

Turkish President Recep Tayyip Erdogan announced that the country would no longer be called Turkey, as the name was no longer the "best way" to represent the culture and values of the people.

Erdogan released a statement on Dec. 3 announcing that the country would be renamed "Turkiye" instead of Turkey, TRT World News reported. The term Turkiye will be used on exported products and brands and for activities and correspondence.

"The phase Turkiye represents and expresses the culture, civilization and values of the Turkish nation in the best way, " Erdogan's statement said.

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Turkish Communications Director Fahrettin Altun posted a tweet in which he highlighted the name change as "another important step" that will "strengthen the Turkish brand."

"As part of this, the phrase 'Made in Turkiye' instead of 'Made in Turkey' began to be used in our export products," the statement says. "As a result, our products, which are the pride of our country in international trade, are promoted and presented to the rest of the world using the 'Turkiye' branding."

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"Our aim is now to represent our state and nation's thousand of years of experience in every sector under the 'Turkiye' brand," Erdogan said in the statement.

The Turkish name for the country is "Turkiye," according to the outlet. This name was taken after independence from Western occupation was earned in 1923. Several names have been used, but Turkey was used and adopted by many.

It was suggested in a Twitter post by a Turkish social media influencer that "Turkey had decided to change the name of their country from Turkey to Turkiye to avoid confusion with the name of the turkey bird of the same name."

This reason was also supported and explained by TRT World on Dec. 13. The outlet said that if you search the word "turkey" in the Google search engine, you will receive a multitude of results, including the turkey bird, commonly used for Thanksgiving dinners.

Turkiye is not the first country to go through a rebrand. The Netherlands announced in 2019 that it would drop the name "Holland." Also in 2019, Macedonia voted to change the country's name to the "Republic of North Macedonia," the New York Times reported.

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Turkey announces name change to Turkiye, citing need to represent 'culture' and 'values' - Washington Examiner