Something wicked this way comes
Remember Act 4 Scene 1 of Macbeth by William Shakespeare? That’s where the witches gather around a smoky black cauldron. “By the pricking of my thumbs/something wicked this way comes,” says one. That’s how I feel these days in Ankara. Though we tend not to “open locks, whoever knocks.” We all know that Turkey needs to be ready for what is coming. This week has been about that anticipation.
I see three things that are coming. The first one is the imminent corporate sector deleveraging/restructuring. When global monetary policy moves from quantitative easing (QE) to quantitative tightening (QT), it’s time for the corporate sector to move from leveraging to deleveraging. The foreign exchange indebtedness of the Turkish corporate sector only exacerbates the situation. It’s all about how corporate debt is to be replaced by government debt, if you ask me. Easier said than done, obviously.
Second is Donald Trump’s tweet threatening Turkey with “large sanctions” for the arrest of pastor Andrew Brunson. A bill that passed at the Senate Foreign Exchange Committee this week, ordering U.S. executive directors of IFIs to prevent them from providing financial support to Turkey, has already been bad. With the new Iranian sanctions of the U.S. coming at full speed, Turkey looks rather courageous, if you ask me. Trump’s tweet just adds to the pressure.
Third is the welfare effect of a housing price collapse. Note that decades of chronic inflation has conditioned Turks to quickly invest their savings by buying homes. Those habits die hard. Any housing price collapse means a negative wealth shock for us all. The depth of the latter would make any recovery more L-shaped, something we have never experienced before in this country.
It’s not only me, mind you. It’s obvious to anyone paying attention that something wicked this way comes. It’s time for Turkey to focus on solutions, and technically, there are many effective ones. But it’s hard to pick one in the absence of a strategy, and that absence persists a month and a week after the June 24 election.
After the Central Bank’s decision of “masterful inactivity” on the monetary policy front, looking desperately for a positive surprise in Ankara? Look more closely at the new Strategy and Budget Office of the Presidency. Turkey has long been looking for a centralized policy design and coordination unit. Now we finally have one. It’s just like an enhanced Office of Management and Budget of the White House, which is exciting.
If you are trying to get a sense of the new Medium Term Program to see a strategy, do not look for a minister or a ministry in today’s Turkey. That sort of thing is no longer very important. Look for the Office of Strategy and Budget of the Presidency. Quite an improvement over what we had in the past.