Analysis: Erdogan puts Turkish policymakers in dilemma

Sun Jul 21, 2013 9:05am EDT
 
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By Nick Tattersall and Asli Kandemir

ISTANBUL (Reuters) - With a powerful prime minister bent on pumping up growth ahead of elections but a sliding currency and rising borrowing costs, Turkish policymakers are caught between a rock and a hard place.

Rattled by weeks of anti-government protests and with a peace initiative for Kurdish militants looking increasingly fragile, the last thing Prime Minister Tayyip Erdogan needs with an election cycle starting next year is an economic slowdown.

His rhetoric has become increasingly populist in recent weeks, vowing to "choke" speculators who he said were growing rich off "the sweat of the people", and blaming a "high interest rate lobby" for seeking to undermine Turkey's growth prospects.

Such words from a leader who has transformed the economy over the past decade, overseeing some of Europe's fastest growth and a near tripling of Turks' nominal wealth, has unnerved investors who have long bought in to the Turkey rising story.

"The Turkey narrative has certainly suffered," said Christian Keller, a former IMF representative in Turkey and now a senior economist at Barclays Capital in London.

Erdogan and the ruling AK Party he founded have built their reputation on Turkey's economic transformation, winning three successive parliamentary elections over the past decade as a burgeoning middle class grew richer.

But his determination to maintain that record has laid bare a rift between fellow populists such as Economy Minister Zafar Caglayan, a vocal critic of the central bank, and more moderate and voices such as Deputy Prime Minister Ali Babacan, viewed as a steadier hand trusted by the markets.

Erdogan's appointment of columnist and TV commentator Yigit Bulut, who last month suggested the prime minister's enemies were seeking to kill him by telekinesis, as his chief economic adviser, as well as probes into recent stock market transactions and currency trades, have done little to calm nerves.   Continued...

 
Turkey's Prime Minister Tayyip Erdogan addresses members of parliament from his ruling AK Party (AKP) during a meeting at the Turkish parliament in Ankara June 25, 2013. REUTERS/Umit Bektas