Following Turkey Russia and Iran's summit in Ankara last week, Reuters announced that the U.S. is preparing to apply increasing economic sanctions on Russia. The reason given for these sanctions was the Russian meddling in U.S. elections and cyberattacks. At the same time, the U.S. was both escalating its statements about sanctions on Iran and waging an open trade war with China.
Of course, this picture was completed by Bashar Assad's inhumane chemical attacks on civilians in Eastern Ghouta. Through U.S. President Donald Trump's statements, the U.S. signaled that it would intervene in Syria, and the Pentagon did not deny Trump this time. Trump reiterated yesterday that they would intervene in Syria, while Russia repeated that they would respond to an attack.
While a U.S. confrontation with Russia in Syria reaches fever pitch, U.S. power in the Pacific has become questionable because of the potential trade war with China. As a corollary of all these developments, developing country currencies have begun to lose value with the Russian ruble in the lead. It is certainly striking that all these developments happened after the Ankara summit. However, it is not independent of the U.S. trade war with China. The U.S.'s most vulnerable point against China is China's dollar-based reserves. And China's last and most powerful weapon to use against the U.S. is to start to reduce its dollar-based reserves, even if gradually. For this, the U.S. is relatively raising the value of the dollar and consolidating it by further warming up the Middle East, which is already the hottest spot in the world, and by applying sanctions on Russia and Iran.
As Trump said that he wants to withdraw from Syria, this warming up is not similar to those in President George W. Bush's era and cannot be maintained with direct, long-term invasions. At this point, the U.S. can directly intervene and fight against neither the Assad regime, which is the base of terror in Syria, nor other terrorist organizations. On the contrary, it can clandestinely support them, as in the case of the PKK and Daesh, or it can overtly support them as in the case of the PKK's Syrian affiliate People's Protection Units (YPG) in order to further warm up the region. Even if the intervention that Trump mentioned yesterday takes place, it will be limited so as not to disturb Russia.
The U.S.'s direct hegemony is ending in the Middle East and Pacific. While this is happening, the U.S. is striving to tear down and undermine the countries that will be competing against it. For this, financial attacks that follow or terrorist attacks are on the agenda.
The U.S. might continue to use the dollar, which is increasingly losing its position as a reserve currency, for such financial attacks. The currency attacks that started first in Iran and Russia and then in Turkey after the Ankara summit should be assessed in this regard. Another important thing, however, is how these countries respond to such attacks. Russia has quite recent experience with this. When Russia annexed Crimea and oil prices started to fall rapidly in 2014, the Russian central bank was relying on its reserves of $570 billion, with Russian President Vladimir Putin saying that they allocated $400 billion to protect the ruble and the Russian economy. However, when the central bank disposed of the first $100 billion, nothing changed, and the second way was to hike interest rates. In response to the rising pressure on the ruble, the Russian central bank gradually increased its policy rate. From January to October, it raised the policy rate from 5.5 percent to 9.5 percent. However, nothing changed, and the ruble devaluated by 30 percent on an annual basis.
Regarding the rapid depreciation of the ruble and future sanctions, Russia is holding to its previous experiences and responding to these U.S.-led attacks politically by highlighting its strong aspects in the economy rather than in monetary policy.
I think Iran made a historical mistake. A couple of days ago, the Iranian government fixed the riyal to dollar at 42,000 in order to the prevent riyal's depreciation against the dollar. This is exactly what the U.S. wants. Regardless of whether the Iranian government declares that this will prevent black market pricing and dollar demand through black market prices, the riyal will go down at least twice as much as the determined price against the dollar and inflation will accelerate, which will bring black market dual pricing. New uprisings may begin in Iran within a year at the latest, and the regime may progress for two years at the most with this system. In other words, Iran has fallen into the trap of this currency attack. Just as in Brazil, the U.S. has pressed the button for regime change in Iran, which will also run with economic disruption.
Brazil's governments under Presidents Lula Da Silva and Dilma Rousseff were overthrown at the request of oil monopolies and Americanist great capital. Both Da Silva and his successor Rousseff had laid the foundations for making Brazilian national oil company Petrobras effective and switching to a new growth and development policy that would reduce poverty. The fall in interest rates and growth ceasing to be monopoly-oriented and continuing with an inclusive development was the rising point of the process that started with Da Silva and continued with Rousseff. However, this was not allowed. Now, it is time to undermine Venezuelan President Nicolas Maduro, who launched the Petro cryptocurrency against the dollar's hegemony.
Here, it goes without mentioning President Recep Tayyip Erdoğan's stance and Turkey's position. Let us note that Turkey is not as soft as Brazil and is not a country to make mistakes like Iran. The achievements of the Turkish economy in recent years cannot be compared to those of Russia and Iran as Turkey learned important lessons from its 2001 crisis.
If a country has a fully open market that is regulated by independent regulatory and supervisory institutions, if it has a central bank that has independent instruments and unquestionable power and if it practices a floating exchange rate regime, it is unlikely for it to experience a financial crisis through cyclical currency attacks. However, what we need to discuss here is how monetary and fiscal policies will work in the face of such attacks.
Let us note that current Turkish lira-dollar parity cannot be accepted as a new and permanent state of balance in terms of Turkey's basic macroeconomic data and trends. The steps that will lower inflation expectations in monetary and fiscal policy paths in a coordinated way will undermine and suspend the current level of exchange rates. For instance, if a direct U.S. military intervention in Syria is priced and there are relevant rises, what Turkey should do is lower inflation expectations through monetary and fiscal policy instruments. Here, fiscal policy should support monetary policy more intensely than ever. We know that monetary policy on its own is ineffective at such times.
This is the first step that needs to be taken. In other words, monetary and fiscal policies should be in full partnership and fiscal policy steps should come into play as much as monetary policy instruments to lower inflation expectations. The second important step is that Turkey should more rapidly introduce reforms that will improve the investment environment and support industry and exports. For instance, it is important to further expand the Economy Ministry's project-based incentive model that covers leading sectors. Again in this process, markets should not be allowed to shrink rapidly. The Turkish banking system has foreign currency reserves, which is one of the strongest sides of Turkey's finance system. Moreover, the Central Bank of the Republic of Turkey (CBRT) is independent and will take the most powerful steps necessary, which we will see in April.
As a result, all that is happening does not describe a chaotic situation for Turkey, but the common pain of a fresh start for the country.
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