Turkish crisis in the spotlight

Date:20Aug2018

There has been a dizzying coverage of the Turkish “currency crisis” in the international media, with some outlets — like Bloomberg and Project Syndicate — devoting special dispatches to it. I thought it might be useful to bring in one place some of this coverage.

In its latest news piece today (August 20), Bloomberg speaks of a legitimate concern — that of possible repercussions of Turkey’s efforts to stem speculation against the currency. Earlier, the news site had a special ‘Turkey Week” (here) that pulled together commentary by its Opinion writers, touching upon, among others, US-Turkey relations, modalities of the Turkish crisis and (relatively muted for now) possibilities of contagion from it. As a side, one interesting column (by S. Das) asked — and expressed some skepticism on — whether the new capital rules adopted after the GFC will prove useful, with Turkey acting as a test case.

The Project Syndicate has pulled together a number of its recent articles on Turkey here. After observing how Turkey is not following the textbook crisis response — of hiking interest rates and engaging the IMF — one of the two influential global economy experts, M. El Erian seems to have remained hopeful (“[r]ather than rewriting the game plan for crisis management in emerging markets, Turkey may well end up confirming it”), but concerned (of possible contagion, should Turkey take the alternate path). J. O’Neill seemed somewhat even more hopeful that, “[d]espite his escalating rhetoric, Erdoğan may soon find that he has little choice but to abandon his isolationist and antagonistic policies of the last few years”, and that he cannot imagine “European leaders will sit by and do nothing while Turkey implodes on their border.” Let’s hope…

In another Big Read column, FT explored the deeper (institutional) roots of the crisis from the perspective of Erodogan’s critics, which have a few pertinent quotes from Turkey’s two prominent academics, Prof. Daron Acemoglu of MIT and Prof. Dani Rodrik of Harvard. In this Leader column, the Economist observed that the crisis posed “three types of risks: for other emerging markets, nervous that investors will flee as contagion spreads; for Turkey’s economy, which is staring at a deep recession; and for the West, whose fraying bonds to Turkey could finally break”, and explored how bad things could get in each area, coming out rather concerned.

Finally, R. Samuelson of the Washington Post sums up contagion risks here, citing the opposite views from luminaries like F. Bergsten (of the PI, not so concerned) and D. Lachman (of the AEI, quite concerned). Parenthetically, Peter Coy of Bloomberg Business also explores contagion in this comprehensive article, which contains a very useful (and alarming) vulnerability table, which has Turkey at the very top of 19 emerging market economies…

All this is quite worrisome stuff, no doubt — so let’s finish with one of late Aretha Franklin’s (R.I.P.) best songs ever, saying a little prayer that “common sense” will prove common and things will soon stabilize, relatively speaking…