Turkey’s Currency Meltdown, from an editorial by The Wall Street Journal.
Turkey’s lira fell as much as 5% on Wednesday, and it’s lost more than a fifth of its value this year, adding to a long decline that is forcing extreme monetary measures to compensate. Much of the blame lies with President Recep Tayyip Erdogan, as Turkey has been running a current-account deficit that is on trend to exceed 6% of GDP. …
Meanwhile, Mr. Erdogan has been beating the central bank like it’s Syria’s Bashar Assad. In Ankara this month, he called high interest rates “both the mother and father of all evils.” Investors took this to mean he’s exerting political control over Turkey’s central bank even as inflation has reached nearly 11%.
With capital fleeing, Mr. Erdogan is getting higher interest rates in any case as the central bank tries to stem the lira panic. On Wednesday the bank lifted a key lending rate to 16.5% from 13.5%. Consider this the price of the lost credibility of Turkish institutions under Mr. Erdogan’s increasingly authoritarian rule. Dictators are rarely good economic managers because they want to dictate fiscal and monetary policy as much as they do every political choice.
Erdogan can order his people around, but the markets (aka the collective will of millions of interested parties) won’t necessarily co-operate.