1 00:00:01,680 --> 00:00:05,120 Speaker 1: Hey, Benchmark listeners, it's scott landman. Here. Just a quick 2 00:00:05,240 --> 00:00:08,879 Speaker 1: note before we start the show. This episode covers Turkey's 3 00:00:09,000 --> 00:00:13,080 Speaker 1: recent economic woes. It's a fast moving story and after 4 00:00:13,200 --> 00:00:17,080 Speaker 1: recording our interview for the episode, news broke that Cutter 5 00:00:17,280 --> 00:00:20,560 Speaker 1: has promised to invest fifteen billion dollars in the country 6 00:00:20,800 --> 00:00:24,119 Speaker 1: to help pull it out of its financial straits. While 7 00:00:24,120 --> 00:00:27,720 Speaker 1: we don't go into that matter on this podcast, that 8 00:00:27,840 --> 00:00:32,000 Speaker 1: move could help alleviate Turkey's financial crunch, but it probably 9 00:00:32,080 --> 00:00:36,360 Speaker 1: won't solve the bigger challenges facing Turkey. To hear more 10 00:00:36,400 --> 00:00:40,440 Speaker 1: about those bigger themes, keep listening to this episode and thanks. 11 00:00:42,600 --> 00:00:46,080 Speaker 1: When a country's currency is plunging in value and inflation 12 00:00:46,240 --> 00:00:50,240 Speaker 1: is soaring, there's a standard playbook for what policymakers should 13 00:00:50,240 --> 00:00:52,839 Speaker 1: do about it. You have to swallow your medicine and 14 00:00:52,960 --> 00:00:57,120 Speaker 1: raise interest rates really really high. In Turkey, the lira 15 00:00:57,200 --> 00:01:00,400 Speaker 1: has lost of its value this year, the most of 16 00:01:00,520 --> 00:01:05,280 Speaker 1: any emerging market. Yet it's strongman leader, President Reje taip 17 00:01:05,400 --> 00:01:09,600 Speaker 1: Er Towan says lower interest rates actually bring down inflation. 18 00:01:10,160 --> 00:01:12,280 Speaker 1: Is it possible that he's right and this will all 19 00:01:12,280 --> 00:01:15,600 Speaker 1: blow over? Or is the world staring down the barrel 20 00:01:15,640 --> 00:01:18,840 Speaker 1: of the biggest financial crisis in a decade, one that 21 00:01:18,920 --> 00:01:32,360 Speaker 1: has major geopolitical implications as well. Welcome to Benchmark. I'm 22 00:01:32,360 --> 00:01:36,720 Speaker 1: Scott Lanman, Economics editor with Bloomberg News from Washington. This 23 00:01:36,760 --> 00:01:39,759 Speaker 1: week we turned to Turkey, where things are moving fast, 24 00:01:39,760 --> 00:01:41,600 Speaker 1: and it's good to have someone there to help us 25 00:01:41,640 --> 00:01:44,640 Speaker 1: sort through everything that's happened and even maybe help us 26 00:01:44,720 --> 00:01:47,920 Speaker 1: figure out what is going to happen next. Owner On 27 00:01:48,160 --> 00:01:50,800 Speaker 1: is a reporter for Bloomberg News based in the nation's 28 00:01:50,840 --> 00:01:53,840 Speaker 1: capital of Ankara, where he's had a front row seat 29 00:01:53,880 --> 00:01:58,200 Speaker 1: to the financial and economic turmoil there. Owner. Welcome to Benchmark. 30 00:01:58,840 --> 00:02:01,400 Speaker 1: Thanks God, it's great to be yere. Owner. Can you 31 00:02:01,440 --> 00:02:05,000 Speaker 1: just tell us why Turkey's currency is collapsing and why 32 00:02:05,280 --> 00:02:10,480 Speaker 1: inflation is soaring? But the most obvious trigger for the 33 00:02:10,600 --> 00:02:15,920 Speaker 1: latest round of lear weakness has been dispat with the 34 00:02:16,040 --> 00:02:20,480 Speaker 1: US over the continued detention of an American pastor, Mr 35 00:02:20,720 --> 00:02:24,320 Speaker 1: Mr Andrew Bronston in Turkey, who spent many two years 36 00:02:24,320 --> 00:02:27,280 Speaker 1: in the jail here in Turkey over charges to ladd 37 00:02:27,320 --> 00:02:31,760 Speaker 1: to espionage and terrorism. Having said that the problems of 38 00:02:31,800 --> 00:02:37,640 Speaker 1: the Turkish currency, the Lira, is more complicated than fundamental 39 00:02:37,840 --> 00:02:42,280 Speaker 1: than just what the US spat is all about Turkey 40 00:02:42,360 --> 00:02:46,320 Speaker 1: has a large current account deficit which is seeing expanding 41 00:02:46,360 --> 00:02:49,520 Speaker 1: the six points or per cent of its economy by 42 00:02:49,520 --> 00:02:53,760 Speaker 1: the end of this year. And the fact that Turkish 43 00:02:53,840 --> 00:02:57,840 Speaker 1: non financial and financial companies have quite a bit of 44 00:02:58,800 --> 00:03:02,960 Speaker 1: repayment to do over the next twelve months and final 45 00:03:03,080 --> 00:03:07,639 Speaker 1: exchange are the key vulnerabilities of the economy that is 46 00:03:08,360 --> 00:03:12,600 Speaker 1: causing pressure on the currency at times of stress such 47 00:03:12,639 --> 00:03:16,000 Speaker 1: as the current one. And isn't this also due to 48 00:03:16,720 --> 00:03:20,320 Speaker 1: you know, let's say, a non traditional policy approached by 49 00:03:20,600 --> 00:03:24,600 Speaker 1: President Urdawan and who controls the central bank. Right now, 50 00:03:25,440 --> 00:03:28,880 Speaker 1: let's put it this way, the unorthodox policy approach that 51 00:03:29,040 --> 00:03:32,720 Speaker 1: Dan has to economy in general and Monstro policy in 52 00:03:32,800 --> 00:03:37,440 Speaker 1: particular definitely has a role play in what's happening to 53 00:03:37,600 --> 00:03:41,720 Speaker 1: the Leila and to infallation in general. Now, although their 54 00:03:41,720 --> 00:03:48,119 Speaker 1: extensive banks is independent and it's free to use its 55 00:03:48,160 --> 00:03:52,640 Speaker 1: montro policy instruments to achieve its target, we know that 56 00:03:53,160 --> 00:03:57,760 Speaker 1: the bank has long been criticized for failing to use 57 00:03:57,800 --> 00:04:02,480 Speaker 1: its instruments freely. Are under pressure from politicians led by 58 00:04:02,520 --> 00:04:06,800 Speaker 1: present there the one, as you have said earlier, Present Air, 59 00:04:06,840 --> 00:04:13,000 Speaker 1: do one believes that lower costs of borrowing, we'll just 60 00:04:13,440 --> 00:04:18,880 Speaker 1: result in a lower rate of consumer inflation. Now that's 61 00:04:19,000 --> 00:04:23,000 Speaker 1: really an extraordinary idea in the sense that it goes 62 00:04:23,040 --> 00:04:30,080 Speaker 1: again the mainstream economic thinking. Normally, higher lending costs should 63 00:04:30,120 --> 00:04:35,120 Speaker 1: result in lower credit growth and flower demand growth, which 64 00:04:35,120 --> 00:04:41,200 Speaker 1: should result in a flower right in consumer prices. But 65 00:04:41,279 --> 00:04:44,040 Speaker 1: for air do one that doesn't seem to be the case. 66 00:04:45,240 --> 00:04:49,880 Speaker 1: So where are turkeys interest rates right now? The average 67 00:04:49,920 --> 00:04:53,080 Speaker 1: cost of funding that the Turkish Center Bank provides is 68 00:04:53,080 --> 00:04:57,360 Speaker 1: now just around seventeen point seventy five, which equals its 69 00:04:57,440 --> 00:05:02,320 Speaker 1: benchmoint policy rate. Now that might be small, minor volativity 70 00:05:02,440 --> 00:05:06,080 Speaker 1: from small variations from day to day, but this this 71 00:05:06,200 --> 00:05:10,000 Speaker 1: Turkey's interest rate, and it's about five percentage points higher 72 00:05:10,400 --> 00:05:13,640 Speaker 1: than where the rates were at the beginning of this year. 73 00:05:14,839 --> 00:05:18,960 Speaker 1: And where do analysts and economists think that interest rates 74 00:05:19,120 --> 00:05:23,760 Speaker 1: should be in order to better address the issues that 75 00:05:23,800 --> 00:05:28,320 Speaker 1: we've been discussing. It's a very difficult question to answer 76 00:05:28,480 --> 00:05:31,800 Speaker 1: for a few reasons, and the first and most important 77 00:05:31,839 --> 00:05:35,919 Speaker 1: one is the fact that traders and analysts and invested 78 00:05:36,000 --> 00:05:39,320 Speaker 1: that we're speaking with around the world have been telling 79 00:05:39,480 --> 00:05:43,440 Speaker 1: us that it is impossible, nearly impossible, to fix the 80 00:05:43,520 --> 00:05:47,960 Speaker 1: problems facing the Turkish era at the moment with a 81 00:05:48,080 --> 00:05:52,440 Speaker 1: monetary policy action alone. Because of the complexity and the 82 00:05:52,520 --> 00:05:55,960 Speaker 1: gravity and the magnetitude of the problems facing Turkey's economy, 83 00:05:56,680 --> 00:05:59,880 Speaker 1: it would probably take more than justice sense of bank 84 00:06:00,000 --> 00:06:04,240 Speaker 1: action to fix the problems of the lira and stabilize 85 00:06:04,240 --> 00:06:08,279 Speaker 1: the currency, and what other actions with those possibly be. 86 00:06:09,320 --> 00:06:13,280 Speaker 1: Investors believe for Turkey to be able to stabilize the vira, 87 00:06:14,279 --> 00:06:19,080 Speaker 1: first of all, it needs to augment any monastery tightening 88 00:06:19,640 --> 00:06:26,719 Speaker 1: with lower government spending. Without meaningfully tightening the fiscal policy, 89 00:06:27,320 --> 00:06:32,480 Speaker 1: analysts and investors believe that they're going to be continued 90 00:06:32,640 --> 00:06:37,080 Speaker 1: inflationary pressure that will make it really difficult for policy 91 00:06:37,080 --> 00:06:40,920 Speaker 1: makers to reign in consumer prices. Owner, can you tell 92 00:06:41,000 --> 00:06:44,120 Speaker 1: us a little bit about how this is all affecting 93 00:06:44,520 --> 00:06:48,040 Speaker 1: the average citizen and Turkey are Are they paying a 94 00:06:48,080 --> 00:06:51,920 Speaker 1: lot more for goods or their daily lives right now 95 00:06:52,040 --> 00:06:55,360 Speaker 1: or has it not really gotten to them yet. The 96 00:06:55,400 --> 00:06:58,719 Speaker 1: recent depreciation in the currency has yet to feed into 97 00:06:59,080 --> 00:07:04,280 Speaker 1: consumer price it on a meaningful scale. However, having said that, 98 00:07:04,839 --> 00:07:07,640 Speaker 1: because of the fact that the lyra lost about it 99 00:07:08,200 --> 00:07:11,680 Speaker 1: quarters of its value in just about two weeks, there's 100 00:07:11,720 --> 00:07:16,600 Speaker 1: going to be a spillover impact very soon. Based on 101 00:07:16,680 --> 00:07:20,320 Speaker 1: studies by the Central Bank and others who monitorors economy, 102 00:07:20,360 --> 00:07:23,320 Speaker 1: we know that most of the splower two takes place 103 00:07:23,840 --> 00:07:27,000 Speaker 1: in the first two months following the episode of depreciation. 104 00:07:28,120 --> 00:07:32,160 Speaker 1: So two, actually consumers are definitely being hurt by what 105 00:07:32,400 --> 00:07:36,560 Speaker 1: was already a high level of installation rate, but they 106 00:07:36,600 --> 00:07:40,560 Speaker 1: have yet to feel the pain from the most recent 107 00:07:40,600 --> 00:07:45,640 Speaker 1: episodes of lilar weakness. That brings me to our next question, 108 00:07:45,680 --> 00:07:48,600 Speaker 1: which is that the big news as we're talking right 109 00:07:48,640 --> 00:07:52,320 Speaker 1: now is that President Urdwan has announced that Turkey will 110 00:07:52,360 --> 00:07:57,000 Speaker 1: boycott iPhones and all other American electronics. Is that going 111 00:07:57,080 --> 00:08:00,280 Speaker 1: to cause some more pain for people in Turkey or 112 00:08:00,440 --> 00:08:03,720 Speaker 1: is that really just kind of a show that Urdue 113 00:08:03,880 --> 00:08:07,840 Speaker 1: is making that he opposes America's actions on this and 114 00:08:08,200 --> 00:08:13,240 Speaker 1: what President Trump has done to raise tariffs on Turkish medals. 115 00:08:13,480 --> 00:08:16,400 Speaker 1: It certainly has a symbolic value for President either one. 116 00:08:17,040 --> 00:08:19,280 Speaker 1: On the other hand, it is going to change things 117 00:08:19,400 --> 00:08:23,200 Speaker 1: for churchs who are willing to abide by Adolan Schole 118 00:08:23,560 --> 00:08:27,440 Speaker 1: to boycott American electronics. Now, on the one hand, obviously 119 00:08:27,440 --> 00:08:29,960 Speaker 1: it would be difficult to say goodbye to your iPhone 120 00:08:30,000 --> 00:08:33,320 Speaker 1: if you're really addicted to it. But on the other hand, 121 00:08:34,000 --> 00:08:37,520 Speaker 1: the alternatives that turks us such as the Korean made 122 00:08:38,600 --> 00:08:42,720 Speaker 1: some songs that everyone sided in this speech, or Turkish 123 00:08:42,800 --> 00:08:47,839 Speaker 1: cool themselves iPhone, it actually wouldn't cost consumers more, it 124 00:08:47,920 --> 00:08:53,560 Speaker 1: would instead cost less. Now, how do you define pain 125 00:08:53,640 --> 00:08:58,480 Speaker 1: for consumers? Really? Is the answer to your question. People 126 00:08:58,520 --> 00:09:01,520 Speaker 1: may be paying less, but will they really be happy 127 00:09:01,679 --> 00:09:06,480 Speaker 1: with something that they had to basically throw away because 128 00:09:06,520 --> 00:09:08,520 Speaker 1: of they called by the president, which they don't have 129 00:09:08,640 --> 00:09:14,440 Speaker 1: to bide by, but they may choose to build. So owner, 130 00:09:14,600 --> 00:09:18,719 Speaker 1: you've spent some time covering some major international meetings like 131 00:09:18,840 --> 00:09:23,199 Speaker 1: the International Monetary Fund and the Group of twenty, which 132 00:09:23,320 --> 00:09:26,760 Speaker 1: was just in Turkey not too long ago. How do 133 00:09:26,840 --> 00:09:32,040 Speaker 1: you expect these organizations, you know, these these global policymakers 134 00:09:32,320 --> 00:09:36,600 Speaker 1: to react and deal with Turkey situation in the coming months. 135 00:09:36,640 --> 00:09:39,920 Speaker 1: Is there any chance, for instance, that the i m 136 00:09:40,040 --> 00:09:43,360 Speaker 1: F would consider a bailout for Turkey if things got 137 00:09:43,360 --> 00:09:47,439 Speaker 1: really bad. I think a precondition for any possible i 138 00:09:47,559 --> 00:09:51,560 Speaker 1: MS bailouts would be a request by the turchi comment 139 00:09:52,240 --> 00:09:55,040 Speaker 1: to the to the Washington based lender. Now, as far 140 00:09:55,120 --> 00:09:58,079 Speaker 1: as we know, there has been no such request made 141 00:09:58,559 --> 00:10:03,320 Speaker 1: to the i m S as recently as today, not 142 00:10:03,440 --> 00:10:08,520 Speaker 1: only that President has repeateously rejected the notion that Turkey 143 00:10:08,559 --> 00:10:10,840 Speaker 1: would be forced back to the i m F for 144 00:10:10,920 --> 00:10:15,400 Speaker 1: any international bailout package. Now what does what does that 145 00:10:15,480 --> 00:10:17,840 Speaker 1: really mean for the relationship between Turkey and the I 146 00:10:17,960 --> 00:10:21,800 Speaker 1: m S. It's a tricky question. Turkey has lived with 147 00:10:22,520 --> 00:10:25,640 Speaker 1: the i m F reality for decades and it's most 148 00:10:25,720 --> 00:10:29,600 Speaker 1: recent stand by agreement ended less than a decade ago, 149 00:10:30,200 --> 00:10:33,080 Speaker 1: and the last time Turkey repaid an installment on an 150 00:10:33,080 --> 00:10:35,520 Speaker 1: earlier i m F one was just five years ago. 151 00:10:36,080 --> 00:10:40,360 Speaker 1: But for everyone, I m F bailout and i m 152 00:10:40,440 --> 00:10:44,599 Speaker 1: F programs are just part of the equals is to 153 00:10:44,840 --> 00:10:51,319 Speaker 1: chilage or in other words, he sees any engagement with 154 00:10:51,400 --> 00:10:58,520 Speaker 1: those institutions an organization in the form of aslone. He 155 00:10:58,640 --> 00:11:05,880 Speaker 1: sees them as vowing to an instrument of international exploitation, 156 00:11:06,040 --> 00:11:10,360 Speaker 1: so to speak. So it's right now, as things said, 157 00:11:10,440 --> 00:11:13,680 Speaker 1: it looks very unlike before President A one to order 158 00:11:13,800 --> 00:11:16,640 Speaker 1: his bureaucrats to get in touch with the Borhingin based 159 00:11:16,640 --> 00:11:20,360 Speaker 1: foot slender so that Turkey can get the money and impact. 160 00:11:20,520 --> 00:11:23,440 Speaker 1: To be honest, and this comes from the various official 161 00:11:23,880 --> 00:11:28,120 Speaker 1: and both Turkish internacial ships that we speak with. Although 162 00:11:28,200 --> 00:11:32,480 Speaker 1: Turkey does have funding needs, it does not have the 163 00:11:32,600 --> 00:11:36,200 Speaker 1: kind of funding shortage that would force it to seek 164 00:11:36,600 --> 00:11:40,160 Speaker 1: such rescue package to begin with. And in any case, 165 00:11:40,240 --> 00:11:43,920 Speaker 1: I just read a note from Barrenburg Bank economist Mickey 166 00:11:44,000 --> 00:11:48,199 Speaker 1: Leavey saying that President Trump would by no means support 167 00:11:48,280 --> 00:11:52,880 Speaker 1: of bailout for for Turkey anyway, given that this is 168 00:11:53,400 --> 00:11:57,720 Speaker 1: coming from a dispute between the United States and Turkey, 169 00:11:57,800 --> 00:12:02,080 Speaker 1: so it's probably a moot question anyway. And on that note, 170 00:12:02,440 --> 00:12:05,679 Speaker 1: let's just talk about the broader situation in the world. 171 00:12:06,040 --> 00:12:10,480 Speaker 1: There was some concern last week when this situation really 172 00:12:10,640 --> 00:12:14,280 Speaker 1: blew up with Trump's tariffs on Turkey, and it looked 173 00:12:14,280 --> 00:12:16,719 Speaker 1: like there might be some contagion to emerging markets, that 174 00:12:16,800 --> 00:12:20,240 Speaker 1: we might have something that resembled, say, the Asian financial 175 00:12:20,320 --> 00:12:23,319 Speaker 1: crisis of the late nineties. Maybe maybe not as bad 176 00:12:23,360 --> 00:12:26,640 Speaker 1: as the global crisis a decade ago, but still something 177 00:12:26,720 --> 00:12:30,679 Speaker 1: that was starting to look bad. Why will there or 178 00:12:31,080 --> 00:12:36,000 Speaker 1: will there not be a spreading of this budding crisis 179 00:12:36,080 --> 00:12:38,599 Speaker 1: to other countries. Is this something that's likely to be 180 00:12:38,720 --> 00:12:42,360 Speaker 1: confined to Turkey or could it spread? Judging from the history, 181 00:12:42,520 --> 00:12:45,440 Speaker 1: we know that the Turkish currency does have an impact 182 00:12:45,480 --> 00:12:48,240 Speaker 1: on other EM currency in the sense that whenever it 183 00:12:48,360 --> 00:12:52,520 Speaker 1: comes under pressure, similar amount of pressure built on some 184 00:12:52,679 --> 00:12:55,840 Speaker 1: of the other EM currencies to the South Africa rent. 185 00:12:56,960 --> 00:13:00,240 Speaker 1: So that's a risk to keep in mind. Something even 186 00:13:00,320 --> 00:13:05,319 Speaker 1: more important is the exposure of international banks two Turkeys 187 00:13:05,760 --> 00:13:10,760 Speaker 1: local banking sector, especially that of the European banks. We 188 00:13:10,920 --> 00:13:15,960 Speaker 1: so from data provided by different Financial Aggravations earlier this week, 189 00:13:17,240 --> 00:13:21,400 Speaker 1: European banks exposure to Turkish local market is so huge 190 00:13:22,120 --> 00:13:25,120 Speaker 1: that it is actually considered to be a possible force 191 00:13:25,920 --> 00:13:30,240 Speaker 1: of a risk in the case of added pressure in 192 00:13:30,360 --> 00:13:36,520 Speaker 1: Turkish economy. In fact, last week the FT reported that 193 00:13:37,440 --> 00:13:41,520 Speaker 1: European Central Banks is concerned about the exposure of at 194 00:13:41,600 --> 00:13:47,599 Speaker 1: least couple of European banks, namely b MP and and 195 00:13:47,840 --> 00:13:51,199 Speaker 1: b b b A of Spain. So there is certainly 196 00:13:51,400 --> 00:13:55,640 Speaker 1: a risk out there at risk of contagion. How much 197 00:13:55,800 --> 00:13:58,640 Speaker 1: it really is and how seriously it should be taken, 198 00:13:59,320 --> 00:14:01,680 Speaker 1: I guess it's called to be something that people will 199 00:14:01,760 --> 00:14:04,240 Speaker 1: try to out there going forward. Good. Right now, it 200 00:14:04,320 --> 00:14:09,520 Speaker 1: doesn't seem to be an imminent huge amount of risk. Well, owner, 201 00:14:09,600 --> 00:14:12,560 Speaker 1: this story is obviously far from over and something we're 202 00:14:12,600 --> 00:14:15,920 Speaker 1: going to be watching closely. Of course, at Bloomberg and 203 00:14:16,240 --> 00:14:19,800 Speaker 1: I will personally be reading your coverage very closely and 204 00:14:20,000 --> 00:14:23,080 Speaker 1: that of your colleagues in Turkey. So owner on of 205 00:14:23,160 --> 00:14:26,120 Speaker 1: Bloomberg News, thank you so much for taking the time 206 00:14:26,200 --> 00:14:29,600 Speaker 1: to join us on Benchmark today. Thank you, Scott, it 207 00:14:29,720 --> 00:14:41,880 Speaker 1: was great to be with you here. Benchmark will be 208 00:14:41,960 --> 00:14:44,160 Speaker 1: back next week. Until then, you can find us on 209 00:14:44,200 --> 00:14:47,240 Speaker 1: the Bloomberg terminal, Bloomberg dot com, or Bloomberg App, as 210 00:14:47,280 --> 00:14:51,360 Speaker 1: well as podcast destinations such as app podcasts, Spotify, or 211 00:14:51,520 --> 00:14:53,880 Speaker 1: wherever you listen. We'd love it if you took the 212 00:14:53,960 --> 00:14:56,560 Speaker 1: time to rate and review the show so more listeners 213 00:14:56,600 --> 00:14:59,160 Speaker 1: can find us, and you can find us on Twitter, 214 00:14:59,560 --> 00:15:04,120 Speaker 1: follow me at Scott Landman and owner. Our guest is 215 00:15:04,280 --> 00:15:08,920 Speaker 1: at Ankara Wop. Benchmark is produced by toporh Foreheads. The 216 00:15:08,960 --> 00:15:12,600 Speaker 1: head of Bloomberg Podcasts is Francesca Levy. Thanks for listening, 217 00:15:12,680 --> 00:15:13,480 Speaker 1: See you next time.