Becoming a family business once again Credit Darwinek CC-BY-SA-3.0 via Wikipedia

Erdogan appointed his son in law as finance minister. This has worked out about as well as appointing the bloke shagging your daughter is likely to. There may well be a certain amount of loyalty there but competence – at anything other than keeping your daughter happy – is unlikely to be in great supply. As we’re actually seeing.

For the solution suggested to Turkish inflation is that everyone ought to try and go bankrupt. Not that it’s being phrased in quite that manner but that is what is being suggested:

Turkish businesses should announce a 10 per cent discount on goods and services, the country’s finance minister said on Tuesday as he launched a new campaign to tackle runaway inflation.

Berat Albayrak announced the initiative, which he said would last until the end of the year, as part of efforts to counter what he called a “speculative attack” on the lira in August.

This isn’t going to help that foreign exchange rate. Anyone observing matters is going to think this is a pretty silly solution and thus sell the currency down further. And if businesses started to do it then matters would be worse again. For a deliberate attempt to cut prices in an inflationary environment is guaranteed to make you go bankrupt.

Firstly, every importer would end up not even covering the cost of that they import. So, they go bust. An entire sector going down will pull others with it. This just isn’t the way to do it at all.

Mr Albayrak also said that Turkish banks would give a 10 per cent discount on loans taken out with “high interest rates”. The cost of borrowing has soared in recent weeks after the central bank hiked its benchmark interest rate to 24 per cent. He did not provide further details.

That gets even more stupid. The higher interest rates are, themselves, part of the cure for both the inflation and the falling currency. Just as background, over time we expect exchange rates to move in line with relative inflation. A country with higher inflation than others should see its exchange rate declining relative to those of others. This is part of the normal adjustment mechanism.

Higher interest rates are the way of taking some of the steam out of the economy, reducing that money supply expansion through the lending of the banks. Higher rates mean fewer people borrow, there’s a reduction in the expansion of that money supply, the very thing which brings inflation down. So, to demand that the banks ignore the very process by which inflation is reduced is very silly indeed. The insistence of someone who has gained his position as economy minister through something other than his competence in economics.

Jason Tuvey, senior emerging markets economist at the consultancy Capital Economics, described Tuesday’s announcement as disappointing. “The latest programme from Berat Albayrak (once again) disappoints hopes that the central bank’s aggressive rate hike last month would be backed up by a broader improvement in domestic economic policymaking,” he said.

Well, yes. Announcing that you, the person supposedly running the economy, don’t know how economies work rarely inspires confidence now, does it?

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Southerner
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This actually makes me feel quite good about our South African economy. Compared with the Greeks and Turks our ANC government are geniuses.