bne IntelliNews – Turkey’s economic crisis may surpass 2001 disaster, says former IMF chief economist Rogoff

Turkey could be in danger of falling into a deeper economic crisis than the infamous 2001 disaster that required a bailout from the International Monetary Fund (IMF).

This is the opinion of Kenneth Rogoff, professor of economics at Harvard University, who was chief economist of the IMF between August 2001 and September 2003. In an interview with the Turkish economic daily Dunya, published on March 29, Rogoff noted that the country’s Erdogan administration did not raise interest rates when it should have done so to control inflation, while exacerbating the economic problems of Turkey by firing a series of central bank officials, including three governors. Turkish inflation reached 54% (although some academics who dispute official data calculate it to be 124%), while the Turkish lira, which lost 44% of its value against the dollar the last year was down about 10% year on year for Date. For Turkey, the impacts of the Ukraine crisis, including skyrocketing energy prices, additional food inflation and the expected loss of millions of Russian and Ukrainian tourists this year, threaten to overturn the camel’s back. But President Recep Tayyip Erdogan, who has made much of his political fortune relying on cheap credit, continues to stick to his unconventional “erdoganomic” economics, which prohibits interest rate hikes. interest even in the face of sky-high levels of inflation.

“At this stage, it is very difficult for Turkey to lower inflation without a serious increase in interest rates. Controlling inflation will indeed be painful, as interest rates have not been raised sooner and credibility has been damaged by the repeated layoffs of central bankers,” Rogoff told the newspaper.

He added: “Turkey could be heading for a worse economic crisis than two decades ago, but if the global growth and interest rate environment is still favorable enough despite the war, there is still time to prevent the economy from making a hard landing.”

After the IMF bailout was completed two decades ago, Erdogan promised that Turkey would never return headlong to the international financial institution again.

Official consumer price inflation in Turkey is expected to reach 61.5% in March, according to the median estimate of 17 institutions polled by Reuters last week. Inflation could slow to 54% by the end of the year, the poll also indicates.

“High inflation eventually dampens real GDP growth over the long term. It’s not good for Turkey, in the long run,” BlueBay Asset Management strategist Timothy Ash told CNBC in an interview last week.[Ergodan] leads extremely hot economy. If you’re not prepared to slow the economy down with rate hikes, you may get short bursts of very high GDP growth, but ultimately the economy will come down to earth with a pretty big boom. .

“What’s really worrying right now is this level of depreciation, this pressure on inflation,” Ash continued. “The fear is that this will cause a wider lack of confidence in the banking and financial system. The world you see is running on banks, and that’s the game-changer for Turkey…if that happens, then Turkey is headed for a major systemic crisis.

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