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The Frenzied Economy of Turkey: Erdogan Unfazed by the Ineluctable Financial Collapse

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Inflation is a ubiquitous word nowadays in almost every discussion worldwide. While the concept is tricky to quantify objectively, the subjective interpretation (at least to a layman) is straightforward: prices rise, goods become expensive, and money loses value. Ever since the pandemic upended routine life, inflation has garnered attention from almost every walk of life. Consequently, the mechanism and its impact have been a prominent topic of debate since last year. The United States, for instance, posted an inflation rate of 6.8% this year through November (highest since 1982). Naturally, the global focus has shifted from stimulating the economy to reigning back soaring prices before they get ingrained in consumer expectations. However, Turkey seems to paddle in the reverse direction. More problematic, however, is the utter conviction of the incumbent Turkish President Recep Tayyip Erdoğan in his failing policies that would all but certainly obliterate the emerging economy in the foreseeable future.

According to the Turkish Statistical Institute, the official inflation rate of Turkey has surpassed the 20% mark: clocking a 21.3% annual rate in November. However, the alleged belief is that the on-ground inflation has sailed past the 58% rate. The prices of necessities have soared relentlessly this year, while recurrent shortages have crippled the already debilitated economy. There is a general misconception that the problem is transient (reflecting the rhetoric of the US fed): a wave of hyperinflation currently engulfing most countries. Sure the perpetual Covid variants are to blame for this global financial hodgepodge. However, not entirely. Supposedly, that is the obscure version of reality peddled by Mr. Erdogan to fend off objurgation over his non-sensical economic escapades. Whether it is his political intervention in the monetary policy or his mercurial nature to depose central bank officials resisting his pressure campaign, Turkey is in hot water unilaterally due to its President almighty.

Even before the pandemic embued the economic crisis across the world, Turkey was embattled amidst an impending recession, a mound of debt, and a befuddling wave of inflation. The pandemic merely pushed acceleration on a gradually moving cart towards economic turmoil. To journey back briefly, Mr. Erdogan undertook aggressive pro-growth policies when he took the presidential office in 2003. His core agenda was to enjoin domestic and foreign investors to borrow and invest in Turkish infrastructure to fortify growth in the emerging economy. His efforts got praised worldwide. Domestically, Mr. Erdogan embodied a progressive leader. His policies worked efficaciously as employment took off (slicing poverty into half), and the standard of living swelled beyond expectations. Unfortunately, however, the progress was short-lived. The problem was Erdogan’s apparent ego complex: emulating infallibility and omnipotence above the standard norm. Despite turning the economy piping hot, his rhetoric exhorting excessive borrowing never subsided and continued to fuel the monstrous inflation in the face of limited resources and stunted growth. Today, he openly defies the orthodox view of tightening monetary policy to curb rising prices. Instead, he advocates an inane perspective – higher interest rates lead to higher inflation and low growth. More outrageous (and a little frightening) is the fact that he somehow seems excessively confident in his strategy to lower the interest rates to allow people to borrow and spend more – completely overlooking the toppling domestic currency and economic confidence.

Over the past year, the Turkish Lira has lost more than 45% of its value against the US Dollar. Evidently, the deterioration started back in 2018 (way before the pandemic) partly due to a political fallout with the United States. While the standoff resolved, the Lira never regained footing against the greenback. The fundamental reason was the same: underlying hyperinflationary pressure and a confusing economic policy. Mr. Erdogan’s ossified commitment to cheap borrowing has forced Turkish banks to expend dollar reserves in the forex market to buoy the domestic currency: though the efforts have proved futile lately. Earlier this week, the Lira plunged to an all-time low of more than 18 Lira against the US Dollar. Compare that to the rate of under 4 Lira against the greenback in 2018. While the volatility has been deemed transitionary by the Erdogan regime, the domestic producers dependent on imports have been crushed under prohibitive costs: leading to further shortages and subsequent price hikes.

As a result, the tumbling currency has further colored the country with economic uncertainty (above and beyond the already nebulous reality in the guise of the Omicron variant) as legions of domestic businesses with excessive foreign debt have filed for bankruptcy. Foreign investors have noticeably shown prudence and aversion in the face of Erdogan’s draconian intervention in the economic policymaking and political point-scoring. The sharp irony of the situation is that the policies that once lowered the poverty level have now actively contributed to the youth unemployment level of 25% this year. Furthermore, the pandemic has truncated any immediate prospects of investment. To sum up, Mr. Erdogan’s aim to let the Lira depreciate in order to cheapen exports has veritably backfired as the pandemic has limited the sale of Turkish goods around the world. Due to intermittent lockdowns, Turkey’s tourism industry has failed to reap expected foreign exchange. In contrast, expensive imports like fuel, medicine, and fertilizers have turned more costly: pushing the BOP further into the negative territory. With scarce dollar reserves, shortage of necessities, blistering inflation, and an ever-growing pile of foreign debt, it is chilling to witness the nonchalance of President Erdogan.

While the economic crash is imminent, President Erdogan is eying his chances of reelection in 2023. However, an emboldened opposition and his slumping popularity are probably starting to pull him out of his utopian purview. In an October survey, more than 80% of the Turkish population believed that the government was handling the economy abysmally. Their apprehension is boiling in the form of mass protests throughout the country. Yet, President Erdogan seems as inflexible as ever. The reality is that Mr. Erdogan has been in the office as a king in domination. Since September, he has influenced three consecutive rate cuts cumulating to 500 basis points. Has dismissed the chiefs of the Turkish Central Bank resisting his preposterous interventions. And he is the sole reason why Turkish inflation is estimated to scurry past 30% next year. Compare the outrageous figure to the 4.9% rate in the eurozone that is already setting off alarms and taper talks. In a bid to exude confidence, the Turkish ministry recently announced Mr. Erdogan’s commitment to financing the losses of the Lira deposits losing value against hard currencies. Further, Mr. Erdogan himself announced a 50% hike in the minimum wage rate: inadvertently pushing inflation. These unorthodox moves would drive the budgetary deficit, push more businesses into the ground, and ultimately lead to more unemployment and shortage.

These absurd steps are all but a campaign to regain support before elections. The facade of confidence and control is similar to the bid calling interest rates as ‘father and mother of evil’ in the guise of Islamic principles against usury. He clearly never had a problem with interest payments at the pinnacle of his office; in a political fix, he is more inclined to attract support from the Islamic orthodox fraction of his voter pool instead of correcting a ludicrous approach against inflation and currency depreciation. Simply put, Mr. Erdogan’s strategies lack basic financial logic. Combined with his intolerance for an alternative viewpoint, his policies might win him another term, but they would inevitably drag Turkey into a financial black hole.

The author is a political and economic analyst. He focuses on geopolitical policymaking and international affairs. Syed has written extensively on fintech economy, foreign policy, and economic decision making of the Indo-Pacific and Asian region.

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Guangdong special economic zones at China

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Guangdong Province in southern China is distinguished by the economic development. The sign been approached by “Made In Guangdong” is becoming so famous globally, besides the Guangdong industries and its unique culture.

  Guangdong represents one of the most important provinces of China for a number of political, economic, social and natural reasons. Indications of the success of the openness experiment pursued by China since the late seventies of the last century are evident in it.

Guangdong special economic zones have made great achievements. As the province with the largest economic output in China, south China’s Guangdong Province has achieved tremendous economic development in the past 40 years, thanks to the establishment of special economic zones.

 According to my information, the Guangdong region has established the “Zhuhai Doumen” intelligent manufacturing economic development zone recently, after the Guangdong Provincial Government officially approved the establishment of the “Zhuhai Doumen intelligent manufacturing economic development zone”, which will implement the existing provincial-level economic development zone policy.  It is the third regional economic development zone in “Zhuhai” after “Foshan Industrial Park and Liangang Industrial Zone”.

 Guangdong Province is an economic powerhouse in southern China, and the province will promote high-quality development this year by fostering new engines of growth and strengthening cooperation and communication in the regions of (Guangdong-Hong Kong-Macao Greater Bay) to deepen reform and opening up.

 Guangdong Province, a major part of China’s foreign trade and industrial hub, accounts for about one-tenth of China’s GDP and is the largest of all Chinese provinces.

 Guangdong Province pays close attention to the progress of China’s modernization and the overall picture of reform and opening-up and major national strategic planning. It firmly attaches importance to the reform and opening-up policy by strengthening cooperation between the province and the “Hong Kong and Macao” regions, aligning the development of Guangdong with the “Northern Metropolis” plan of Hong Kong and the economic diversification strategy of Macao, implementing the “Greater Bay Area Connection” project in a more in-depth way, and working with “Hong Kong and Macao” together to build a world-class bay area, injecting vigor and strong impetus into its modernization efforts”.

 It Is remarkable that most of the cities of Guangdong Province are crowded with visitors from all over the world, especially Arabs and Africans, who come to them for the purpose of trade and search for investment. The province is considered one of the regions characterized by the diversity of its industries, quality and attractive prices, as well as commercial activities in various fields.

 It Is also distinguished by the beauty and sophistication of its buildings, which embody the aesthetics of modern Chinese architecture, as well as the spread of green spaces and vibrant squares throughout the day. It is also distinguished in terms of weather, with its atmosphere that resembles the tropical atmosphere with heavy rain, and the various cities of Guangdong Province are also characterized by easy access to it from different parts of the world throughout the day, as well as ease of movement between its various cities, thanks to the presence of an infrastructure that makes most of the cities of the province at the forefront of attractive cities for investment globally.

  Due to the existence of the commercial ports, Guangdong has a long experience in terms of commercial exchanges regionally and globally.

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The Theatrics of the US Debt Ceiling: Fiscal Austerity or Political Brinkmanship?

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It amazes me sometimes how pointless some discussions are to begin with, yet the hype they garner is just outrageous compared to relatively pressing issues in the mainstream spotlight. I am no Democrat supporter or even a backer of Mr. Biden – as my columns would effectively relay. But I am also no fan of idiocy when I see it (also apparent in my writings). And the ongoing tensions lacing the US polity, unfortunately, qualify that criterion by a long shot. While the debate around the debt limit is neither novel nor unprecedented, the preachy statements posited in the US Congress to justify the GOP posturing are downright ridiculous. But even if we don ignorance and accept their premise as is, I fail to see any alternative path toward economic balance and prosperity – assuming that is actually the end goal of the Republican lawmakers.

Before even delving into the nitty-gritty of the debt ceiling saga, let’s get some ambiguities clear and out of the way. The debt limit is a statutory cap on the total amount of money the US federal government is authorized to borrow. Currently, that amount stands at $31.4 trillion – already reached about two weeks ago. However, breaching that limit is well-nigh avertable: All the US Congress needs to do is raise that limit higher, and the chaos would disappear overnight. No risking the smooth functioning of the money markets, no pressure on the Treasury and the Federal Reserve, and no uncertainty while the world grapples with demons on geopolitical and economic fronts. But what about fiscal responsibility? Since 2001, the United States has consistently rolled around with budget deficits year after year and filled the gap with excessive borrowing to meet its financial obligations. In that period, the US has accreted about $20 trillion in national debt; debt held by the public as a percentage of Gross Domestic Product (GDP) has roughly tripled from 32% to 94%. Even for an economy as omnipotent as the United States, that’s prohibitive. But we need a thorough comparison to realize the underlying trends – both on the macroeconomic and political scale.

The US last enjoyed a fiscal surplus during the presidency of a Republican. Mr. George W. Bush. But you rarely witness a vociferous detour around that nook of history by any GOP members. It is perhaps because he squandered that surplus on tax cuts for the wealthy. Or on the invasion of Iraq. While one led to more inequity in an already lopsided social demography, the latter ushered those resources to decimate a foreign land on bogus pretenses. Another manifestation of the ‘Trickle-Down economic principle (apparently notorious for the Conservative fractions on both sides of the Atlantic) was during the Trump tenure. Mr. Donald Trump ran through another profligate tax-cutting regime to do good for the US economy. But ironically, the debt ceiling got raised three times during his own term, sans the drama we witness whenever the Republican Party holds either of the chambers of the US Congress but not the presidency. At this point, some people won’t need any more evidence to gauge the true intentions of the right-wing bloc baying for fiscal austerity. But let us sieve through the Democratic rule for a non-partisan outlook.

During the past two decades, only two episodes stand out apropos of record debt as a function of the US economy: the Great Recession 2007-09 and the Covid-19 pandemic. While I admit Mr. Biden’s nearly $2 trillion worth of American Rescue Plan helped (in large part) fuel the current inflation, it also helped avoid a devastating recession and jumpstart a speedy recovery. It kept businesses running, people employed, and spending buoyed. Notwithstanding that the unemployment rate in America is still at a multi-decade low, the economy could very well trip into another recession as the Fed moves aggressively to blunt the pain of price increases. But insofar as projections go, it appears that the American economy would brush past a prolonged recession and manage a relatively softer landing. According to recent estimates, annualized inflation has slowed consistently for the past six months, dipping to 6.5% from a summer peak of 9%. While the Republicans tried effortlessly to channel their narrative around the economy, their embarrassing rout during the Midterm elections was a testament to the facetious nature of their claims. 

Then there was the infamous standoff in 2011. We all know how the markets got rattled; borrowing costs spiked; and why the S&P downgraded the credit rating of US debt, even though we didn’t actually breach the limit. But we rarely ask: Why did the Obama administration end up with a debt of such mammoth magnitude? The answer is obvious. The Great Recession dried up tax receipts as the economy plunged into turmoil; the social safety net programs swelled, especially as spending on unemployment benefits soared. In 2008, the federal budget deficit stood at $458.6 billion, which staggered to $1.4 trillion in the subsequent year. Despite that, it took roughly eight years for unemployment to return to normality. Had the government raised taxes or cut spending drastically, the US would have witnessed something like Great Britain.

In the aftermath of the financial crisis, while America sustained spending to bolster the economy via borrowing, the Tory-led British government embarked on an austerity drive: Annual expenditure, as a percentage of GDP, was cut from 46% to 36%; spending on health infrastructure dragged down by half over the last decade. In hindsight, the difference is remarkable. While American wages have just stagnated over the course of the past 15 years, real wages in Britain have declined over the same period. While the US still contends with a rousing China for global economic superiority, Britain got recently supplanted by India (its former colony) as the fifth-largest economy in the world. The story couldn’t be any more lucid. 

Ultimately, the GOP political mumble of “adding guardrails” and “fiscal reforms” to bend the debt curve might be politically splendid, but to an economic mind, it is frankly garbage! And I have no doubt that regardless of cogent reasoning, the hardline Republicans would hold the government paralyzed – as was evident when they scrapped concessions from Mr. McCarthy in barter for his post as the House speaker. Nonetheless, the bottom line is that regardless of your disposition – Democrat or Republican, pro-spending or pro-austerity – the debt ceiling is, as aptly verbalized by Senator Ron Wyden, “not about adding new spending,” but “it’s about paying debts that the government [already] owes – debts that were incurred under presidents of both parties.”

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The Prolongation of BRICS: Impact on International World Order and Global Economy

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BRIC, coined by an economist Jim O’Neil in 2001 as an acronym for the four countries like Brazil, Russia, India and China. South Africa joined in 2010 and this organization turned into BRICS. The prime goal of BRICS was to the formation of the diplomatic and economic assistance framework, and the challenges to western influence in the global economic order. The Western cordially welcomed BRICS with the earnestness. The BRICS, five major emerging economies, together represent about 26% of the world’s geographic area, inhabitant of 2.88 Billion people which is about 42% of the world’s population and accounted for a quarter of the global GDP. The enlargement of BRICS was talked on June, 2022 at the groups summit which took place in Beijing. The 2023 summit will take place in South Africa. 

Russian Foreign Minister, Sergey Lavrov stated that Algeria, Argentina and Iran have already applied for joining in BRICS. In contrast, Saudi Arabia, Turkey , Egypt have declared their intense interest for becoming the member of BRICS and they are already engaged in the membership process. Now the question is what outcomes or impacts may be happened in the International world order and global economy in order to the expanding of BRICS?

Russia is the second largest producer of crude oil among OPEC+ members. Russia is a self-contained of its oil production. Because of Russia-Ukraine War, America and its European allies imposed sanctions on Russia and some European countries minimized their dependency on Russian oil. China imports its oil from Saudi Arabia, Russia, Iraq, Oman, Brazil and Kuwait. China increases at 21% its imports crude oil from Russia in 2022. The  member of OPEC+ decided to reduced their oil production by 2Million barrels per day two month before and it will continue in the end of 2023. The U.S.A and other western countries aggravated. 

Saudi Arabia is one of the world’s largest crude oil exporters, 11% of the world’s petroleum liquid production and has 15% of the world’s oil reserves. Recently it has declared that it will take initiatives to boost its oil production from 10 to 13 Million barrels per day. Egypt is a prominent petroleum producer and exporter. Egypt exports cotton and textiles, raw materials, chemical products and petroleum products. Egypt is a dialogue partner to the Shanghai Cooperation Organization. Iran is the world’s largest hydrocarbon Reserves in the world. Western world impose sanctions again and again. Iran is also the member of OPEC+ and Shanghai Cooperation Organization. Algeria, 10th largest natural gas reserver and 6th largest gas exporter. It is also a member of OPEC+. Turkey exports motor vehicles and their parts, gold and petroleum oil. It is the world’s 7th exporters of cotton. Argentina is a major exporter of wheat and corn. 

If Saudi Arabia, Egypt, Iran, Argentina, Turkey become the member of BRICS, it will enormous impact on the World order and global economy. 

1. The sphere of influence of the oil producer countries will be strengthen. The structure of oil market in the global economy will be changed. 

2. Lula da Silva, President of Brazil suggested to make a common currency for the BRICS countries. If it takes place, a more stable currency will be created. 

3. As China, Russia, Iran have a rivalry with the U.S.A, they will make more alliances to combat the U.S.A influence in the world. 

4. As the U.S dollar is the world’s dominant currency in the global financial and monetary system, and it is the Centre of U.S.A global leadership, the monopolistic influence of Dollar will be undermined. If BRICS countries will reach an agreement to continue their trade through a common currency, De-dollarization will be accelerated. 

5. As Turkey, Algeria, Iran, Egypt, Saudi Arabia and others have already shown their interest to join BRICS, it will accelerate to boost BRICS global influence. Russia, China will lead collectively in the world order. 

6. Most of the countries reserve crisis will be resolved. 

7. Saudi Arabia, Russia, Brazil will be able to export their oil collectively to China, India, Egypt and Turkey. China is Saudi Arabia’s biggest trading partner with more than $50 Billion. 

8. The investment of China and Russia in African continent will be extended. China is the largest trading partner of South Africa. South Africa is more advanced than any other countries of Africa because of its natural wealth and location. 

9. De-Dollarization will deteriorate the U.S.A capability to alter the behavior its opponents. If BRICS continuously expand, China will easily promote its agenda and grand strategy in the world. 

10. According to World Bank, BRICS grew at an average of 6.26 percent in 2021. On the contrary, G7 grew at 5.15%. If BRICS continues to attract other countries to join, it will emerge as a powerful force of the global leadership. The GDP is hoped to double to 50% of global GDP by 2030.

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