After a deep plunge late last week, the Turkish lira had fallen nearly 30% against the dollar since June 24, when President Recep Erdogan won an election cementing all but absolute power. Inflation is running at a 16% annual rate. The iShares MSCI Turkey exchange-traded fund (ticker: TUR) is off more than 40% year-to-date, and by Friday was dragging down other emerging markets and shares of European banks with exposure.
Official Ankara’s response to these calamities has been inadequate, to say the least. Erdogan appointed his son-in-law, Berat Albayrak, as finance minister, replacing respected veteran Mehmet Simsek. Central bank governor Murat Cetinkaya whiffed on an expected rate increase, then disappeared from view.
Erdogan himself took a mystical approach as the currency melted down. “If they have their dollars, we have our people, our god,” he told the nation Aug. 9, urging citizens to save the lira with their mattress greenbacks. State-dominated media poured on hype about a Washington-led currency plot aimed at undermining Turkey’s resurgence to lost Ottoman glory. “Surveys suggest half the population believes in a plot against Turkey and the lira,” says Emre Akcakmak, who covers the country for regional investor East Capital. “It is a bit of a surreal environment.”
The roots of Turkey’s travails are no mystery. Erdogan pumped a congenitally volatile economy full of steroids in the election run-up, restraining interest rates and pushing a large guaranteed loan program through…
