Prime Minister Recep Tayyip Erdogan’s new chief adviser envisions Turkey as a superpower, attracting investment from Asia and the Middle East as U.S. policy undermines emerging markets while Europe heads for a “wholesale collapse.”
“The U.S. will pursue its own interest even as it means sacrificing the global economy,” Yigit Bulut, a journalist and broadcaster, said in his office at Dolmabahce Palace in Istanbul yesterday in his first interview with international media since his appointment on July 9. He predicted that the Federal Reserve will start removing its monetary stimulus, which has boosted capital flows to developing nations including Turkey since 2008, by the end of this year.
Bulut, born in 1972, was appointed in the wake of nationwide anti-government protests that Erdogan said were exploited by bankers seeking to undermine Turkey’s economy. The premier’s new adviser is one of the foremost proponents of the theory that an “interest-rates lobby” is seeking to profit by raising borrowing costs.
The prospect of U.S. tightening has sent Turkish markets tumbling. Since Fed Chairman Ben S. Bernanke signaled a shift on May 22, yields on Turkish two-year debt have increased almost 400 basis points, the most worldwide. The lira plunged 4 percent against the dollar and the main stock index dropped 18 percent.
The slump overlapped with weeks of nationwide protests, triggered by development plans for an Istanbul park and broadening to target what demonstrators said is Erdogan’s increasingly authoritarian and Islamist style. The premier, who plans to hold local, parliamentary and presidential elections in the next two years, responded with a police crackdown and said the unrest was a plot abetted by the finance industry and media.
Bulut described the protests as an “internal and external attack on the Turkish state.” He said Erdogan had no choice but to suppress them, and that the rhetoric against international backers of the protest movement in finance and media shouldn’t deter investors. Regulators are investigating trades made before and during the unrest.
“The person at the head of the Turkish Republic has to protect his position there,” he said. “If he hadn’t done that, these incidents wouldn’t have stopped, they would have spread.”
Talk of an interest-rate lobby isn’t unique to Turkey and doesn’t mean the central bank is being pressured into keeping rates low, he said. The government “won’t ever take a step that’s removed from the reality of the market.”
The bank said yesterday that it will consider raising rates when the Monetary Policy Committee next meets on July 23.
Bulut predicted that bond yields, which have risen to about 9 percent from a record low of 4.79 percent on May 17, would “find a balance” at between 6 percent and 7 percent. The currency will swing between 1.85 and 2 per dollar, which he called “an acceptable margin.”
The pullout by foreign investors since May is a problem for Turkey because it relies on capital flows from abroad to finance growth. It will probably run a current-account deficit of 6.8 percent of gross domestic product this year, according to the median estimate in a Bloomberg survey of 22 economists.
Bulut said the country should be seeking money from the Middle East and China.
“China has $4 trillion in reserves, they’re buying U.S. bonds and they want to diversify their assets,” Bulut said. “If we do the right marketing with them, why shouldn’t $100 billion flow to Turkish Treasury bonds, assets and stocks?”
He outlined a future tri-polar world dominated by the U.S., China and Turkey. Turkey aims to triple its output to $2.25 trillion by 2023, Bulut said, which would make its economy slightly smaller then than the U.K.’s is now.
As for Turkey’s bid to join the European Union, “the world needs to see that the EU is a loser that’s headed for a wholesale collapse,” he said. “There’s no 'model EU' from Turkey’s perspective, because the model has collapsed.”
Turkey needs to develop capital markets to make Istanbul the center of a “Eurasian Stock Exchange” for companies from Uzbekistan to Azerbaijan and the Middle East, Bulut said. It also needs to “create new instruments” for Middle Eastern investors who abide by Islam’s prohibition against interest.
“You can’t raise money just by selling Treasury bonds,” Bulut said. Turkey sold its first Islamic debt last September, raising $1.5 billion.
The Turkish government owns “very important assets,” and Bulut said he favored selling them via initial public offerings, with the state retaining a majority stake and no changes in management. The government said in May it’s working on an IPO for roads and bridges, after canceling a $5.7 billion sale to bidders including Koc Holding AS, Turkey’s largest group of companies.
“A prime minister who says he’ll do public offerings is a friend of the market,” Bulut said. “It’s necessary to be a friend of the market.”