Does Erdogan Really Believe In an Interest-Rate Lobby?

intrestBy Marc Champion
At a meeting of the European Venture Capitalist Association in Istanbul today, Turkey’s Finance Minister Mehmet Simsek got a zinger of a question: “Is it time to call the doctor?” asked Jochen Wermuth, chief investment officer at Wermuth Asset Management.

Wermuth was referring to the notion being promoted by Prime Minister Recep Tayyip Erdogan and his government that a bizarre international conspiracy provoked recent protests in Turkey. He cited one particularly odd claim, from a pro-government Turkish commentator, who said the German airline Lufthansa was in on the plot because it wanted to prevent construction of a huge third airport for Istanbul and so avoid competition for its hub in Frankfurt.

Wermuth’s question gets to the one that really matters in Turkey right now: Does Erdogan believe what he says?

If he does, then Turkey is headed for a dark place. If not, then while cynical, this is just politics, and no lasting damage will be done. Only Erdogan knows what he believes, but after a week spent talking to people in Istanbul, my take is that most of what he has said is carefully calculated.

When Erdogan returned from a trip to North Africa a few days after the protests began, the ruling Justice and Development Party was in a panic. Its supporters were dismayed by the brutality of the police. The protesters themselves weren’t the usual hardline secularist suspects but a cross section of society; many had never voted or been to a demonstration.

The timing was also awkward. The government was already concerned about the economy. Prosperity and growth expanded the ruling party’s vote from its base — the roughly 35 percent that it first won in 2002 and also the proportion of Turks that according to several social surveys are religious conservatives — to 50 percent at elections in 2011.

Erdogan and his party know their fate is tied to the economy. In 2009, when growth briefly plummeted, so did the Justice and Development Party’s poll ratings. Growth was 8.8 percent in 2011 but 2.2 percent last year. It is projected to come in between 3 percent and 4 percent this year. That’s good by developed economy standards, but the risks are mainly negative — like other emerging markets, when the U.S. sneezes, Turkey catches pneumonia.

This might not be too worrying, but Erdogan sees his current third term in office as the “master” period, during which he wants to leave a lasting mark on the country, including on Taksim Square and Gezi Park, where his redevelopment plans set off the protests. He also wants to change the constitution to create a more powerful presidency and to run for election to the post in 2014. This is a huge agenda, only achievable with political dominance.

So when Erdogan returned from Tunisia, he didn’t follow President Abdullah Gul in trying to compromise with the protesters and take a step back. Instead, he appealed to his religious conservative base. To rally them he had to turn the protesters into the old secularist enemy that Erdogan and his supporters believe oppressed them for decades. The prime minister chose the combative route, which has served him so well.

This helps to explain the extraordinary way in which Erdogan continues to insist that the protesters drank beer in a mosque where they took refuge for treatment. Only godless, hardline secularist wastrels would drink in a mosque. The imam has denied repeatedly that there was any drinking; still, Erdogan repeats the charge.

As Turkey’s main TV stations weren’t covering the protests, Erdogan and his supporters also need to discredit the foreign media that is doing so — hence the claims about CNN International and the BBC, including accusations that a Turkish BBC reporter is a foreign spy and traitor. Most important, foreigners and in particular foreign banks had to be part of a plot to destabilize the economy: This is the so-called “interest lobby.”

An essential part of the story Erdogan is building for his domestic audience is that the economy was doing brilliantly until May 31. The government had just signed a deal to build the largest airport in Europe and broken ground on a third bridge over the Bosporus. Moody’s had just upgraded Turkey to investment grade for the first time. The prime minister has been repeating this theme constantly.

So when the Turkish stock markets tank (most likely due to decisions at the U.S. Federal Reserve rather than the protests), and the economy underperforms, it won’t now be the fault of the government but instead of the interest-rate lobby — a conspiracy of foreign and domestic banks seeking to destabilize Turkey for profit — and its secularist co-conspirators.

Simsek, who has chimed in to support the government’s conspiracy theories lately, wanted to soothe the fears of the venture capitalists he addressed today. He told them he didn’t believe in conspiracies himself and, critically, that the interest lobby that Erdogan has repeatedly cited is but a reference to history.

There are a lot of people, including Turkish business people and bankers in particular, who would like to believe that was true. The government has never defined the interest-rate lobby, never said who is in it, or how it makes money by driving up Turkey’s cost of borrowing. Yet Erdogan has made clear that he believes the lobby was alive enough to plot the protests. Deputy Prime Minister Ali Babacan has said: “They know who they are.”

At times, pro-government media have made the interest-rate lobby an anti-Semitic slur, but I don’t think that is what Erdogan has in mind when he uses the term. It is more complicated than that.

Erdogan remains scarred by the situation that his Justice and Development Party found when it took power in 2002. Foreign debts had soared during a recent financial crisis, and inflation ran at about 60 percent. Debt servicing took up a huge portion of government revenue — 86 percent, Simsek told the investors. The big banks, owned by Turkey’s old secularist families, made money from all this.

Times, however, have changed — for the better. Erdogan paid off Turkey’s debt to the International Monetary Fund and has cut the country’s sovereign debt pile from about 80 percent of gross domestic product in 2002 to less than 40 percent. The interest rate that Turkey pays to service that debt had also fallen dramatically — until the protests, after which it rose again.

It is hard to imagine now how a plot to manipulate Turkish interest rates for profit would work, at least on the scale of a conspiracy. Large positions would have to be taken before the protests and those would show up in the central bank’s records. That doesn’t appear to have happened. If Turkish banks sought to drive up interest rates as they might have done in the era of 60 percent inflation, they would take a big hit, as they are now major owners of Turkish government bonds, whose price would fall.

Erdogan may believe in the interest lobby, in the sense that secular banks like to charge as much interest as they can and pay as little as they can. And on religious grounds, Erdogan prefers to see real interest rates remain at zero. This was the reason that Turkey’s central bank developed a complex strategy to tighten monetary policy, without raising its policy rate. It was criticism by economists of this policy that first triggered accusations against an interest-rate lobby, in 2011. Erdogan merely revived the idea earlier this month.

If this is all politics then, like in 2011 and as Simsek suggested today, the interest-rate lobby rhetoric will fade away without the government ever trying to name its alleged participants — just as in 2011. Let’s hope.

(Marc Champion is a member of Bloomberg View’s editorial board. Follow him on Twitter.)

22 Comments

  • cbdque Reply

    19 December 2019 at 09:18

    … [Trackback]

    […] Here you will find 23555 additional Information to that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • Freelance WordPress Developer London Reply

    27 December 2019 at 01:33

    … [Trackback]

    […] Read More Information here on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • Polished Concrete Floors Reply

    07 January 2020 at 21:17

    … [Trackback]

    […] Read More on to that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • porn Reply

    21 January 2020 at 05:45

    … [Trackback]

    […] Read More on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • spider control Reply

    24 January 2020 at 08:01

    … [Trackback]

    […] Read More on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • onion addresses 2020 Reply

    14 February 2020 at 21:19

    … [Trackback]

    […] There you can find 87374 additional Info on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • bandar togel Reply

    21 February 2020 at 17:27

    … [Trackback]

    […] Find More on to that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • https://turystyka24.com.pl/forum/hotele-i-noclegi-f9/villahoff-pl-opinie-t163.html Reply

    26 February 2020 at 01:10

    … [Trackback]

    […] There you can find 60957 more Info on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • verthilertva Reply

    29 February 2020 at 23:10

    I really appreciate this post. I’ve been looking everywhere for this! Thank goodness I found it on Bing. You have made my day! Thanks again!

  • KIU-Library Reply

    01 March 2020 at 06:15

    … [Trackback]

    […] Find More on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • Youtube Reply

    26 March 2020 at 12:55

    I have been browsing online more than three hours lately, yet I by no means discovered any attention-grabbing article like yours. It’s beautiful worth sufficient for me. In my view, if all web owners and bloggers made just right content material as you probably did, the net will be much more helpful than ever before.

  • research firm Buffalo Reply

    03 June 2020 at 09:26

    … [Trackback]

    […] Here you will find 49316 additional Information on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • g Reply

    15 June 2020 at 14:00

    Hello, i think that i noticed you visited my website
    so i came to return the choose?.I’m trying to find issues to enhance my
    web site!I suppose its good enough to use some of your concepts!!

  • Coleman requested 롤 듀오 after New Mexico for 롤 랭크 듀오 티어 now. Reply

    18 June 2020 at 15:53

    … [Trackback]

    […] Find More on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • 안전카지노 Reply

    23 June 2020 at 09:13

    … [Trackback]

    […] There you will find 33631 additional Information on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • best web hosting sites Reply

    21 July 2020 at 23:47

    I really love your blog.. Very nice colors & theme.

    Did you build this web site yourself? Please reply back as I’m
    looking to create my own personal website and want to learn where you got this from or exactly what the theme is named.
    Thanks!

  • keto diet pills Reply

    01 August 2020 at 19:03

    … [Trackback]

    […] Here you can find 63498 more Information on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • best hosting Reply

    07 August 2020 at 10:18

    Have you ever thought about creating an ebook or guest authoring on other blogs?
    I have a blog based on the same topics you discuss and would love to have
    you share some stories/information. I know my
    readers would appreciate your work. If you’re even remotely interested,
    feel free to shoot me an e mail.

  • huong dan 188bet Reply

    31 August 2020 at 15:42

    … [Trackback]

    […] Information on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • nu golf thu xinh dep Reply

    07 September 2020 at 07:17

    … [Trackback]

    […] Find More on on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • bitcoin era Reply

    01 October 2020 at 21:32

    … [Trackback]

    […] Read More on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

  • immediate edge Reply

    04 October 2020 at 06:16

    … [Trackback]

    […] Info on that Topic: istanbulpost.com.tr/does-erdogan-really-believe-in-an-interest-rate-lobby/ […]

Leave a Comment