The Asian Exchange Union was established in 1972 and was intended to decolonize the banking system and allow member states to trade with one another without going through the old imperial powers. It never has, however, amounted to much, though it may suddenly be a bigger deal if Iran’s plans are implemented.

In the end the representatives voted to explore the formation of a non-dollar basket of currencies, to bring into being a digital currency controlled by the central banks of member states, and setting up an international banking exchange to rival the US-dominated SWIFT. The US has kicked both Iran and Russia off of SWIFT and interdicted their use of dollars, which has hurt their trade and foreign exchange reserves.

The non-dollar basket of currencies to be used as an alternative to the US dollar as a reserve currency would initially consist of the Chinese yuan, the UAE dirham and the Russian ruble, according to the plan voted on.

The United Arab Emirates’ central bank took part last year in a trial of a Central Bank Digital Currency (CBDC) using mBridge technology directed by the Bank for International Settlements and looking at the potential use of CBDC’s for “international transactions.” The study’s participants also comprised “the People’s Bank of China (PBoC), the Bank of Thailand, and the Hong Kong Monetary Authority with participants hailing the results of the study,” according to Coingeek.

The third resolution was to set up an alternative to the SWIFT bank exchange. According to Investopedia, “The Society for Worldwide Interbank Financial Telecommunications (SWIFT) system powers most international money and security transfers. SWIFT is a vast messaging network used by financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions. ”

Mohsen Karimi, the International Vice President of Iran’s Central Bank, said at the Tehran summit, “The interbank messenger replacing SWIFT will be implemented within the next month among the members of the Asian Exchange Union.” He said that Iran has designed a new exchange that will message members of the Asian Exchange Union’s banks and allow currency transfers among them. He said this method will be cheaper than SWIFT.

For many reasons, the dollar is likely to remain the world’s reserve currency for some time, and the SWIFT banking exchange will remain central. Still, it may be possible for this rival basket of currencies to replace the dollar in Asia for some purposes, and a new banking exchange that allowed South Asian countries to deal with Iran and Russia in ways that the US cannot easily sanction would have its attractions. It is certainly the case that Washington’s over-use of financial sanctions is likely sooner or later to cause other countries to move away from the US-dominated banking exchange and from the dollar, which is a Trojan Horse for the Office of Foreign Asset Control of the US Department of the Treasury.

(The Conversation) – About a decade ago, the world’s biggest economies agreed to crack down on multinational corporations’ abusive use of tax havens. This resulted in a 15-point action plan that aimed to curb practices that shielded a large chunk of corporate profits from tax authorities.

But, according to our estimates, it hasn’t worked. Instead of reining in the use of tax havens – countries such as the Bahamas and Cayman Islands with very low or no effective tax rates – the problem has only gotten worse.

By our reckoning, corporations shifted nearly US$1 trillion in profits earned outside of their home countries to tax havens in 2019, up from $616 billion in 2015, the year before the global tax haven plan was implemented by the group of 20 leading economies, also known as the G-20.

In a new study, we measured the excessive profits reported in tax havens that cannot be explained by ordinary economic activity such as employees, factories and research in that country. Our findings – which you can explore in more detail along with the data and an interactive map in our public database – show a striking pattern of artificial shifting of paper profits to tax havens by corporations, which has been relentless since the 1980s.

Global crackdown

The current effort to curb the legal corporate practice of using tax havens to avoid paying taxes began in June 2012, when world leaders at the G-20 meeting in Los Cabos, Mexico, agreed on the need to do something.

The Organization for Economic Cooperation and Development, a group of 37 democracies with market-based economies, developed a plan that consisted of 15 tangible actions it believed would significantly limit abusive corporate tax practices. These included creating a single set of international tax rules and cracking down on harmful tax practices.

In 2015, the G-20 adopted the plan officially, and implementation began across the world the following year.

In addition, following leaks like the Panama Papers and Paradise Papers – which shed light on dodgy corporate tax practices – public outrage led governments in the U.S. and Europe to initiate their own efforts to lower the incentive to shift profits to tax havens.

Profit-shifting soars

Our research shows all these efforts appear to have had little impact.

We found that the world’s biggest multinational businesses shifted 37% of the profits – or $969 billion – they earned in other countries (outside the headquarter country) to tax havens in 2019, up from about 20% in 2012 when G-20 leaders met in Los Cabos and agreed to crack down. The figure was less than 2% back in the 1970s. The main reasons for the large increase were the growth of the tax avoidance industry in the 1980s and U.S. policies that made it easier to shift profits from high-tax countries to tax havens.

We also estimate that the amount of corporate taxes lost as a result reached 10% of total corporate revenue in 2019, up from less than 0.1% in the 1970s.

In 2019, the total government tax loss globally was $250 billion. U.S. multinational corporations alone accounted for about half of that, followed by the U.K. and Germany.

Global minimum tax

How do policymakers fix this?

So far, the world as a whole has been trying to solve this problem by cutting or scrapping corporate taxes, albeit in a very gradual way. In the past 40 years, the global effective corporate tax rate has fallen from 23% to 17%. At the same time, governments have relied more heavily on consumption taxes, which are regressive and tend to increase income inequality.

But the root cause of profit-shifting is the incentives involved, such as generous or lenient corporate tax rates in other countries. If countries could agree on a global minimum corporate tax rate of, say, 20%, the problem of profit-shifting would, in our estimation, largely disappear, as tax havens would simply cease to exist.

This type of mechanism is exactly what more than 130 countries signed onto in 2021, with implementation of a 15% minimum tax set to begin in 2024 in the EU, U.K., Japan, Indonesia and many other countries. While the Biden administration has helped spearhead the global effort to implement the tax, the U.S. has notably not been able to get legislation through Congress.

Our research suggests implementing this type of tax reform is necessary to reverse the shift of ever-greater amounts of corporate profits going to tax havens – instead of being taxed by the governments where they operate and create value.

Ludvig Wier, External Lecturer of Economics, University of Copenhagen and Gabriel Zucman, Associate Professor of Economics, University of California, Berkeley

This article is republished from The Conversation under a Creative Commons license. Read the original article.

( Otherwords.org ) – British Prime Minister Liz Truss recently resigned after just 45 days in office, disgraced by her own economic prescriptions. There’s a lesson here for the United States, a nation beset by similar economic troubles.

The main takeaway? Tackling inflation by rewarding the rich is a fool’s errand.

Fashioning herself after Margaret Thatcher, the godmother of conservative capitalism, Truss pushed a “mini-budget” centered on major tax cuts for the wealthiest in Britain with no plan for how to compensate for the loss in revenues.

This triggered a “market freefall and spooked global investors,” The Guardian’s economic correspondent Richard Partington explains. The British pound plummeted in value, the Bank of England had to intervene, and Truss was swiftly forced to resign.

The U.K. may have had enough of Thatcherism. But the same farce of “helping the poor” by ensuring the rich get richer is still alive and well in the United States.

President Ronald Reagan promoted this ludicrous concept in the 1980s as perhaps the grandest grift of all time, overseeing massive tax cuts for the wealthiest Americans and an aggressive deregulatory agenda for corporations. When “Reagan took office in 1981, the marginal tax rate for the highest income bracket was 70 percent,” reports the Center for American Progress. “That fell to just 28 percent by the time he left office.”

There are now decades of evidence that trickle-down economics doesn’t work. Lower tax rates on the wealthy aren’t correlated with economic growth, job creation, or higher wages. All that happens is the rich get richer.

Still, today’s Republicans aggressively push the same policies. Recall the 2017 Trump tax cuts for the wealthy. That bill continued what Reagan started and, like its predecessors, failed to create jobs or raise wages.

Although both Republican and Democratic presidents have embraced “Reaganomics” in the past, that’s now changing. President Biden has repeatedly condemned the idea, tweeting as recently as this September: “I am sick and tired of trickle-down economics. It has never worked.”

And yet trickle-down economics is very much on the ballot this year.

House Republican leader Kevin McCarthy has published a plan, very thin on specifics, to fix the nation’s economic woes if his party wins majorities. A one-page description of his plan includes a vague prescription to “bring stability to the economy through pro-growth tax and deregulatory policies.”

In other words, trickle down enthusiasts are yet again promising to deliver a wolf in sheep’s clothing.

They may have some help. Blowing wind into their sails is the corporate media, insisting that worries over inflation could help Republicans win majorities in both houses of Congress — in spite of decades of evidence that the GOP has a record of economic failures and no new plan to offer.

More disturbingly, the GOP has rigged elections in its favor with a cunning combination of gerrymandered districts and voting laws that thwart likely Democratic voters. In Florida, Republican governor Ron DeSantis has even started arresting Black voters he claims are casting ballots illegally.

If Truss’s spectacular fall should teach Americans anything, it’s that trickle-down will fail again. But if the backers of this failed economic model succeed in damaging our democracy, it could take us much longer than 45 days to change course.

Sonali Kolhatkar

Sonali Kolhatkar is the host of “Rising Up With Sonali,” a television and radio show on Free Speech TV and Pacifica stations. This commentary was produced by the Economy for All project at the Independent Media Institute and adapted by OtherWords.org.

Via Otherwords.org .

( Globalvoices.org ) – Whether on a date or at a family gathering, one topic of conversation is on everyone’s lips in Turkey: the country’s deepening economic crisis. There are several angles to the story. While Erdoğan’s government argues that the country is in an “economic war” against enemies, the opposition blames it on corruption fuelled by the leading party.

Inflation is soaring. Official estimates place it at 80 per cent, while independent economists believe it goes well above 150 per cent. In concrete terms, a cup of coffee at a café in Istanbul costs 36 lira — the equivalent of €2. While this might not sound like much for coffee drinkers in say, Greece or Germany, in Turkey, it’s a lot. The minimum wage in Turkey is €302 or around 150 coffees.

The causes for Turkey’s frenetic inflation vary, depending on who you ask. Turkey’s economic woes started a few years ago, but the COVID-19 pandemic hit the population and economy hard, and so has Russia’s war on Ukraine. Russia and Ukraine are among Turkey’s biggest trading partners and sources of tourism.

Even so, inflation in Turkey is faring worse than in these warring countries. Many Turks blame the plunging lira on Erdoğan’s government.

Turkey’s elections

Presidential and general elections are scheduled to take place in June 2023, but there is a chance that Erdoğan will call for early elections. According to our researchers, the electoral campaign will be defined by economic narratives: whichever party offers the most convincing storyline about the economic crisis and its solutions will increase its chances of ruling the country in the near future.

Erdoğan’s administration has kept interest rates low to continue to attract investments and save businesses. It has also put a 25 per cent ceiling on rent increases. However, this measure has proven difficult to implement for many people. Rent costs have still doubled (as seen on popular real estate websites). Distrust in the Turkish lira is spreading, leading to a downward spiral as the country gears up for elections.

Turkey’s media landscape

In Turkey, the media is tightly controlled and social media is monitored. Critics of the state “have been muted through a combination of traditional forms of censorship such as arrests, detentions, intimidation, (…) combined with a crackdown on the internet using high level opaque administrative and judicial decisions blocking, banning, and withholding online content,” according to Global Voices’ Unfreedom Monitor report. About a month ago, an investigation revealed that Turkey’s information and communication authority had collected private user data for over a year.

Mass media, therefore, follows the government line: that Turkey has a generally stable economy with some temporary problems. Questioning this stance might have consequences.

Although direct censorship has not been recorded, there is concern that Erdoğan’s party is introducing regulations to block “alternative statistics” — that have not been approved by the Turkish Statistical Institute (TÜİK) — by using prison sentences. This is important in today’s context, as the official inflation rate according to TÜİK is 79.60 per cent, whereas the independent Inflation Research Group (ENAG) says it is 176.04 per cent. TÜİK stopped sharing the list of items that it used to measure the inflation rate last May.

Opposing narratives

Narrative 1: “The Turkish economy is being targeted”

See this narrative analysis in our database here

Erdoğan’s government imagines itself to be in an economic war surrounded by enemy Western nations, who are often labelled as “imperialist” (even if the term isn’t explained). The enemy is painted as a dark and vague alliance of foreign “centers of power” and terrorists and, of course, the “treasonous” opposition in cahoots with all these evil entities. Narratives about external forces sabotaging Turkey’s economics and politics are not new and have been around for at least a decade, but they have intensified in the past months.

The accusations range from the reasonable to the fantastical. For example, members of the ruling Justice and Development Party (AKP) blame the opposition for painting an extremely ugly picture of the economy, which, it says, becomes a self-fulfilling prophecy because it erodes trust. Meanwhile, the AKP is also attempting to hold on to its dwindling voterbase with exciting and sensational stories about hidden powers conspiring against a strong Turkey. Erdoğan is the brave hero fighting against them alone.

How it’s seen on social media

On August 26, in response to a tweet by The Economist about Turkey’s “topsy-turvy” economy, Turkish Minister of Economy Nureddin Nebati claimed that Turkey’s economy is following a government program and that “no obstacle” will stand in the way. The tweet implies that The Economist is part of this “obstacle.”

Back in April, Erdoğan implied that a “power” is trying to hurt Turkey by hitting the economy and that it’s the same actors who have attempted to destabilize Turkey through military tutelage, coups and terrorism in the past. In November last year, pro-government journalist Karagül claimed that there is a “multinational operation” to create an economic crisis in Turkey.

Who “they” are is never directly stated, but only implied. Sometimes it is the Kemalist elite, sometimes opposition parties, sometimes Western countries, and most often, a combination of all of the above.

Narrative 2: “Corruption and nepotism have replaced meritocracy in state institutions”

See this narrative analysis in our database

The political opposition is accusing Erdoğan and the AKP of nepotism and overall inefficacy. The right-wing coalition, led by the Republican People’s Party (CHP), has vociferously blamed the ruling party for its lack of a general economic policy and for promoting corrupt bureaucrats and political allies who increasingly demand palm grease. This narrative is shared by anyone skeptical of Erdoğan’s governance.

There is an overall sense that the opposition — especially the CHP’s coalition — may have a chance of winning Turkey’s next elections.

Yet, economists warn that the opposition should resist the temptation to make populist promises to fix what is beyond its means, as many of the causes of the economic crisis lie beyond Turkey’s immediate control, such as foreign wars, global financial markets, and longstanding structural issues within the country.

Perceptions about corruption

Although economists and sociologists suggest that corruption is not the biggest issue for economic woes globally, the main opposition bloc is arguing that nepotism, a form of corruption, is indeed the source of most of Turkey’s problems. For our researchers, it is strategic rhetoric for the upcoming elections.

Our researchers have also anecdotally pointed out that, culturally, there is a certain tolerance among some sectors of the population for corruption, justified with arguments such as, “they stole but they served the country too”. But now that the vast majority of people are becoming strikingly poorer, nepotism in particular is being reprehended.

How it’s seen on social media

I filed a criminal complaint about the 56 tender of the General Directorate of Highways, to which the AK Party had connected a hose.
The current amount of 56 tenders delivered to the address by bargaining procedure, although the conditions specified in the law are not met:
95,808,900,620 TL!
Who are these companies? ⬇️

CHP lawmaker Deniz Yavuzyılmaz wrote a Twitter thread, backed up by supporting documents, exposing that a government directorate gave 56 state tenders to certain construction firms, allegedly without due process. Yavuzyılmaz is a young first-time lawmaker who has often pointed out corruption. Formerly, he also exposed bureaucrats receiving multiple salaries in an illegitimate fashion.

View our entire Turkey dataset

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Written byCivic Media Observatory

Via Globalvoices.org

This story is part of Undertones, Global Voices’ Civic Media Observatory’s newsletter. Find out more about our mission, methodology, and publicly available data. Subscribe to Undertones.

Ironically, Russia already seems to see Iran as one lifeline it could use to hedge against sanctions. Moscow is threatening to derail the Vienna negotiations seeking to bring the US back into the 2015 Iran nuclear deal unless it is guaranteed the same right to profit from a reemerging Iranian economy as everyone else.

So here are the paths Iran has taken around US boycotts and sanctions:

1. Faced with US third-party sanctions on anyone who bought Iranian petroleum without a Treasury Department waiver, Iran sold its petroleum to small private refineries in the south of China. These firms do no business with the United States or Europe and have no assets overseas that could be seized. They are private businesses and so their trade with Iran does not imperil large state companies like Sinopec. The trade goes on in soft currencies or Chinese yuan rather than in dollars, denying the Treasury Department any jurisdiction over it. Iran has also sold a lot of petrochemicals for e.g. fertilizer to various countries under the radar.

If Russia has trouble offloading its petroleum in Western markets because of US pressure, it will offer it at a discount to China with the same sorts of arrangements that make it difficult to punish China for the trade.

2. Iran ships the oil on disguised tankers flying third party flags that turn their Automatic Identification System, or AIS, off so that they cannot be traced as they go to Shanghai from Bushehr.

Such stealth tankers can also carry Russian petroleum.

3. Because trading in dollars could attract US sanctions, Iran resorted to other currencies. Tehran sold petroleum to India and accepted rupees for it. Rupees are a soft currency, meaning that no one but Indians really wants them. So Iran cannot buy goods from other countries with the rupees it accumulated. It has to buy Indian goods. Iran thus imported more from India. Likewise, Iran agreed to accept soft currencies from China in return for its oil. China has accumulated a lot of such bills from Africa and Asia and can unload them on Iran because the latter country is desperate. Again, if Iran gets Kenyan shillings, it has to import goods from Kenya with them. Still, Iran may be able to get some needed commodities from Kenya this way. Having to deal in soft currencies reduces the profits on Iran’s oil by perhaps 25%, but that is better than losing 100%.

Especially if Russia is kicked off the SWIFT bank exchange, Moscow would likewise probably have to start dealing in soft currencies for its oil trade, and would likewise suffer significant losses that way. It would, however, still sell enough oil and gas at a discount to stay in business as a country. More important to Putin is that the oil income would flow to him and his cronies, keeping them in power.

4. Iran dealt with other countries under US sanctions such as Venezuela. Washington has sanctioned Venezuela so heavily that there isn’t much else it can do to Caracas, so Venezuela has imported from Iran natural gas concentrates used as diluents, which are needed to refine petroleum into gasoline. Markets such as Venezuela, which is rich in petroleum but poor in methane gas, would also be open to Putin’s Liquefied Natural Gas exports.

5. Iran laundered money on a vast scale through banks in neighboring countries such as Dubai in the United Arab Emirates or Turkey. Russia will also seek out shady bank executives, including in Dubai, who will launder funds for it.

6. Iran protested the strangulation of its economy by targeting neighbors that helped the US enforce the US boycott. Thus, Iran or its allies were somehow responsible for a series of tanker fires in the Gulf that targeted UAE and Saudi ships, and even an Israeli one. Likewise, it or its allies were behind a devastating attack on Saudi Arabia’s Abqaiq oil refinery complex in September, 2019. Iran carried out or instigated this sabotage cleverly, with plausible deniability. This endangerment of their oil proceeds likely made Abu Dhabi and Riyadh more open to negotiating with Iran and caused their lobbyists in Washington to soften their hard line in favor of sanctioning Iran to the hilt.

The analogy should be clear. Russia’s pro-American neighbors such as Poland could see Russian terrorism in response to smothering sanctions, but it would be carried out wearing gloves and leaving no fingerprints.

7. Iran continued to offer neighbors the help of its Iranian Revolutionary Guards Corps special operations forces, cultivating soft power this way in Iraq, Syria, Lebanon and to a lesser extent Yemen. The US could not sanction Iran into geopolitical irrelevancy.

Russia has already deployed Wagner Group mercenaries somewhat in the way that Iran uses the IRGC Jerusalem Brigade, and loaned its Aerospace Forces to Syrian dictator Bashar al-Assad to put down the Syrian revolutionaries. We could see Russia making some money in this way, or at least remaining a power to be reckoned with.

The decision has provoked an uproar on both sides. The 9/11 families and their supporters say that the entire $7 billion should have been set aside for them. Those who care about the people of Afghanistan point to an unprecedented humanitarian crisis in that country that needs to be alleviated with the entire $7 billion.

The humanitarian crisis is severe. Some 20 million out of 38 million Afghans are experiencing hunger. Some 70 percent of Afghan families are having to borrow money to buy food this winter. Save the Children says that 5 million children are at emergency levels of food insecurity. The wheat crop was down 40% this year because of a climate-emergency-related drought.

But the big problem is that Afghanistan had become a modern economy and people were used to banking and credit. Since the Taliban took over in August and the US declared them a specially designated terrorist organization, everyone is afraid to send any money to the country through the Central Bank, which is under Taliban control. The banks have thus frozen up, and credit has dried up. Although in December the Treasury Department finally announced waivers to aid organizations for dealing with the Taliban to provide relief to the people, and Treasury also allowed money to be wired to individuals in Afghanistan, in the real world most institutions don’t trust the US not to fine them, and so the waivers have had little beneficial effect.

I mean, what if you sent money to an Afghan charity and it turned out to be a Taliban front, and the FBI came to your house to take you away for material support for terrorism? The VOA reports on how Afghan fundraisers in the US have been stymied because Gofundme won’t transfer money to Afghanistan for fear of falling afoul of US sanctions, despite the Treasury Department waiver.

Jonathan Landay at Reuters got hold of leaked documents showing that the United Nations is terrified of this situation and trying to set up a currency swap mechanism to sidestep fears of US sanctions.

As I understand the issue, the 9/11 families are not guaranteed to get any of the money. The $3.5 bn. is being held in a kind of escrow in case their suits prevail in court.

Critics of the lawsuits launched by the 9/ll families argue that ordinary Afghans should not be punished for the September 11. 2001, al-Qaeda attacks on the US, since those assaults were not carried out by Afghans. Certainly, innocent Afghans should not be punished. Further, it appears that the Taliban ruling Afghanistan in 2001 had no idea what al-Qaeda was planning to do to the United States.

Still, the Taliban were not mere hosts of al-Qaeda as is sometimes alleged. Al-Qaeda fighters were considered the 55th Brigade of the Taliban military and played an important military role in the last phases of the Taliban take-over of the country in 1995-1996.

So it seems to me that the court cases could go either way, depending on whether the judge feels that the lack of direct involvement of the Taliban in 9/11 is exculpatory and gets the Taliban off the hook, or whether she feels that the Taliban’s entanglement with al-Qaeda is sufficiently extensive to make the former responsible for the latter’s actions.

If the suits fail, presumably the remaining funds would also be released for humanitarian aid in Afghanistan. The Biden administration appears to hope that proceeding in this way will keep the entire $7 bn. from being tied up in court for years. This way, at least a big chunk of the funds can be purposed for helping desperate Afghans.

Liptok and Bertrand write that in January the Biden administration dedicated $308 million to helping ordinary Afghans with aid and with Covid-19 vaccinations. They add that since October, 2021, American assistance to Afghanistan has totaled $782 million.

If the Biden administration can find ways swiftly to disburse some of the $3.5 billion it released for humanitarian aid to Afghans, that step might forestall mass starvation.

It seems, however, that declaring the Taliban, who are the government, a specially designated terrorist organization, is a steep obstacle to efficiently addressing the humanitarian issue. That, more than repurposing half of Afghanistan government money in US hands, is driving the economic and food crisis, now and in the long term. Washington’s obsession with terrorist designations and with sanctions has caused it to imperil civilians in several countries, including Afghanistan, Syria, and Yemen. Ominously, the Biden administration is now considering slapping the terrorist designation on the Houthis in Yemen yet again, after having removed it to avoid the deaths of millions of Yemenis.

Terrorism designations and sanctions should be rethought, especially regarding central banks. Or Biden may have egg on his face again from an Afghanistan debacle, this time not that of a messy withdrawal but the images of Afghans dying on his watch and in part because of his policies.

The circular issued in December, further reads:

The phrase ‘Türkiye’ symbolises and conveys the Turkish nation’s culture, civilisation, and values in the best way possible. As part of this, the phrase ‘Made in Türkiye’ instead of ‘Made in Turkey’ began to be used in our export products; as a result, our products, which are the pride of our country in international trade, are promoted and presented to the rest of the world using the ‘Türkiye’ branding. Our aim is now to represent our state and nation’s thousands of years of experience in every sector under the ‘Türkiye’ brand.

According to Middle East Eye, an online news platform, Turkish officials have already started the process of registering the new name with the United Nations. “The exact timing for the name change is still under consideration by the government, but the process is ongoing,” reported Middle East Eye quoting a senior Turkish official.

While Altun and the President have emphasized that the rebranding would strengthen the country’s reputation, others joked that the campaign is meant to disassociate the country from a certain homonymous bird. “Type ‘Turkey’ into Google, and you will get a muddled set of images, articles, and dictionary definitions that conflate the country with Meleagris – otherwise known as the turkey, a large bird native to North America – which is famous for being served on Christmas menus or Thanksgiving dinners,” reported TRT World.

As the country grapples with soaring inflation, pundits say this is not the time for rebranding, nor there is any point in doing so.

Others criticize the government’s choice to use taxpayer money on this rebrand when there are countless other issues plaguing the community such as a recession, job loss, unchecked violence, gender discrimination, and an Omicron surge, among others.

Via Globalvoices.org

( Globalvoices.org) – Turkish Twitter-sphere was full of memes and jokes after the country’s new Minister of Treasure and Finance, Nureddin Nebati, exclaimed in a TV interview that the economy was about the “twinkle” in his eyes. The twinkle was the minister’s response to a question on economic indicators as the country navigates its worst-ever financial crisis, largely caused by President Recep Tayyip Erdoğan’s unorthodox economic policies, now dubbed Erdoganomics.

Nebati was answering questions on December 21 in a TV interview with journalist Gülçin Üstün Can about new rescue package introduced by the ruling Justice and Development Party aimed at protecting lira deposits from further depreciation. When Can asked the minister to share some of the data, the minister dodged the question, instead audaciously saying, “Let me not give the numbers now. Can you look into my eyes? What do you see?” Caught by surprise, the journalist said she saw happiness but that she would also like to hear more about the numbers, to which the minister said, “The economy is about numbers. It’s about wishes, trust, stability, and expectations. The economy is the twinkle in the eyes. My friends see the twinkle in my eyes.”

Our new economic model: EME (Eyes are the mirror of the economy).

The Minister, appointed December 2021, is a President Erdoğan loyalist who does not have an economics degree. Turkey’s former minister of finance was President Erdoğan’s son-in-law, Berat Albayrak who resigned unexpectedly in November 2020 after his father-in-law sacked the then-governor of Central Bank Murat Uysal.

Albayrak’s resignation followed “a fresh bout of turmoil for the Turkish lira,” with Central Bank spending “tens of billions of dollars of its foreign currency reserves” in an attempt to defend the lira.

Replacing Albayrak was Lutfi Elvan but he resigned earlier this month amid the currency crisis. Nebati, was deputy minister of treasury and finance and is now the third finance minister appointed since Albayrak’s resignation last year.

The new minister seems to have chosen a different path. Relying on fear as well as the twinkle in his eyes.

On December 25, speaking to AKP municipality heads at a meeting, the Minister alluded to consequences for those who refuse to comply with the new policies. Others have reported police security forces going around grocery stores enforcing price reductions.

In a letter addressing the Finance Minister, one factory worker wrote that the twinkle in the eyes of the newly appointed minister comes at the people’s expense:

• Translation
• Original Quote

We saw that twinkle as workers too but the problem is that the twinkle was stolen from us. That twinkle belongs to the youth whose futures you have been playing with, retirees struggling to make it to the end of the month due to low salaries, and scores of unemployed you have left behind. We see that twinkle in the eyes of all the bosses in this country.

Erdoganomics

The president’s latest intervention centers around suppressing the “retail investor demand for dollars. If the lira’s decline against hard currencies exceed banks’ interest rates, the government will pay holders of lira deposits the differential.”

“You receive the current deposit rate and on top of that you can get the differential, so that’s an incentive for foreign currency holders to switch into lira,” explained Emre Akcakmak, managing director of Greenwest Consultancy in Dubai in an interview with The Economist. But Akcakmak warned that the incentive “is not sustainable, because the burden on the treasury will grow as long as this is in place.”

The intervention announcement worked for now. The Turkish lira gained some of its lost value, “moving from 18.36 to as low as 11.11 against the dollar.”

Backdoor intervention

Some analysts suspect that the sweeping decline in exchange rates in Turkey was triggered after the government spent over USD 100 billion of the central bank’s reserves to prevent the lira from depreciating — something the ruling government denied. Though the government claims to have not intervened in the most recent dip, “the fall of $5.9 billion probably signals a backdoor intervention similar to operations carried out over two years from October 2018, when state lenders sold dollars to support the local currency,” reported Bloomberg.

According to the Wall Street Journal, “the bank has limited ammunition to engineer a full-scale recovery in the lira without a change in policy from Mr. Erdogan, who has tried to fight soaring inflation with cuts in interest rates—a course most economists say will make the problem worse.”

Speaking to WSJ, Timothy Ash, an emerging-market strategist at BlueBay Asset Management said, “We’ve reached a point that they recognize we’re on the brink of a systemic problem and if they can’t raise rates, they use foreign currency intervention.”

Such interventions also have left Turkey’s Central Bank reserves “with a net-negative foreign currency reserve.” In the meantime, those who critique the government’s unorthodox economic policies have been “accused of violating an article of the banking law that protects the reputation of banks.” On December 27, Banking Regulation and Supervision Agency, the country’s banking watchdog, filed criminal complaints against several individuals, including former chiefs of the monetary authority, economists, lawmakers, and media commentators. Emin Çapa, an independent economist who was accused of violating the law, denied the allegations on his personal account.

Friends, thank you for your support. I am going to speak shortly. I am not aware of all the details. But this won’t frighten or deter me. It is my responsibility as a citizen, human and a professional to continue telling my people about the reality.

Earlier this month, police arrested three YouTube personalities for interviewing citizens about their financial difficulties. They were all placed under house arrest on charges of “inciting hatred and animosity against some groups” and publicly “denigrating the state and government.” Erdoğan has also lashed out at those complaining of unemployment. Speaking to workers in Turkey’s province of Gaziantep, the president called them “ungrateful,” adding, there are jobs for anyone who is looking. Sentiments outside the Presidential palace are rather different. Longer bread lines, concerns over daily expenses, as well as increasingly eroded trust in the government are signaling potential problems for the ruling coalition ahead of the 2023 election. According to the most recent poll by the polling agency Metropol, the Mayors of Istanbul and Ankara, both representing the main opposition Republic People’s Party, are favorites for the presidential election.

Arzu Geybullayeva is Azerbaijani columnist and writer, with special focus in digital authoritarianism and its implications on human rights and press freedom in Azerbaijan. Arzu has written for Al Jazeera, Eurasianet, Foreign Policy Democracy Lab, CODA, Open Democracy, Radio Free Europe, and CNN International. She is a regular contributor at IWPR, Osservatorio Balcani e Caucaso and Global Voices. In 2019, Arzu launched Azerbaijan Internet Watch, a platform that documents, and monitors information controls in Azerbaijan. Arzu has contributed to GV since May 2010.

Via Globalvoices.org

Central banks around the globe are currently staring at inflation rates unseen in more than 20 years. Supply chain problems and labour shortages arising from the pandemic, combined with sharply rising food and energy prices, have pushed prices up by as much as 6.2% in the US, 4.2% in the UK, 10.7% in Brazil and 4.5% in India. Every central bank has responded by either raising interest rates or committing to raising them in the immediate future.

It’s too early to say whether the new coronavirus variant B.1.1.529, first identified in Botswana, will take rate-rises off the agenda, but certainly they have not been part of Turkey’s plans. Since September, Turkey has cut interest rates by four percentage points from 19% to 15%, wreaking havoc in the financial markets in the process.

The Turkish lira, which was trading at TL8.28 = US$1.00 in early September, fell to TL13.40 a few days ago, its lowest level on record at the end of an eleven-day losing streak. It is now trading at around TL12.10, having recovered a little but then weakened again as investors move money out of weaker currencies in response to new fears about COVID.

So why has Turkey had such an “irrational” policy stance on interest rates while everyone else is doing the opposite?

Erdoğanonomics

It would have been of some academic interest to analyse the reasoning behind such a move, but there has been little forthcoming from the authorities – except to say that it would “boost exports, investment and jobs”. President Erdoğan believes that raising interest rates would raise inflation rather than reduce it, and has maintained this view throughout the near 20 years that he has been prime minister (2003-14) and president (2014 to present). Unlike the 2018 currency crisis, which followed a diplomatic crisis between Turkey and US, the latest debacle is very much homemade and self-inflicted.

Turkish lira vs US dollar

There have been two important changes in governance in recent years with important consequences. First, the move to the current executive presidential regime in 2018 officially crowned the president as the dominant authority in every sphere of policy.

Second, the independence of the country’s central bank, granted as part of a series of economic reforms in the early 2000s before Erdoğan’s AKP came to power, is now also gone. There have been four central bank governors in less than three years, with a clear pattern of dismissals closely following interest rate hikes. The most recent appointment was Şahap Kavcıoğlu in March, and interest rates have not risen since then.

Compounding factors

The lira has now lost nearly 40% of its value since the beginning of the year. This is a massive depreciation for any economy, and even worse for Turkey for various reasons. For one thing, the fall in the lira will soon show up in a rise in inflation, which is already hovering around 20% even by official accounts. The fact that so much of the economy runs on US dollars does not help.

Existing estimates suggest that a 10% depreciation in the lira against the US dollar results in around a two percentage point rise in inflation. Given that inflation has only risen by about one percentage point since the summer, that suggests it has a long way to go yet. About 70% of Turkey’s imports are made up of raw materials and goods used in manufacturing, so that’s where much of the effects will be felt. Among the difficulties is that Turkey has to import most of its energy.

Another issue is that a significant proportion of Turkey’s debts are in foreign currencies – mainly US dollars and euros. The weaker lira makes these debts much more difficult to service, and Turkey is due to pay US$168 billion (£126 billion) of its external debts in the next 12 months. The increased risk of default could inflict serious losses on foreign investors, with certain Spanish and Italian banks among those that are heavily exposed. This raises the prospect of Turkey’s problems spilling over into other countries, and the sell-off in the lira is likely to get worse if market panic becomes prolonged because of variant B.1.1.529.

What can policymakers do?

There are three policy tools available to policymakers in the face of currency turmoil: raising interest rates, selling foreign exchange reserves and imposing capital controls (meaning you prevent foreign currency from leaving the country).

All three aim to take the pressure off the domestic currency. Raising interest rates makes the domestic currency more attractive to investors, since it increases what they can earn from it. Selling foreign exchange reserves means buying more of the domestic currency, so its value is strengthened by the extra demand. And capital controls slow down the volume of trade between the domestic and foreign currency, which means fewer people are selling the domestic currency.

Apart from the fact that the regime in Turkey is not enthusiastic about raising interest rates, it can’t sell foreign reserves because it essentially doesn’t have any. That leaves capital controls, which would be an extreme measure in today’s world and would imply that Turkey was withdrawing from the international financial system. Capital controls are also difficult and costly to enforce, even in countries with robust institutions.

Perhaps instead the central bank will reverse policy and raise interest rates. This already happened during the 2018 currency crisis, when the authorities made a major U-turn and raised interest rates by 6.25 percentage points that September. At that time the lira had plummeted to close to TL6.50 = US$1.00 – still much more valuable than it is today – before strengthening to the low TL5.00s after the change of policy. Similarly, in 2020 a rate-cutting streak was followed by sharp rate-rises later in the year.

Yet, as necessary as it is for Turkey to increase interest rates, this will not do much to solve the significant imbalances in the economy that have accumulated over a long period.

What Turkey needs is a carefully designed and inclusive stabilisation programme with buy-in from large sections of society, with independence for the central bank at its core. This is highly unlikely to happen with the current all-powerful presidential regime, with or without a change in power.

Gulcin Ozkan, Professor of Finance, King’s College London

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Bonus Video added by Informed Comment:

VOA News: “Turkey’s Economic Turmoil Threatens to Stoke Refugee Tensions”