Turkey and the BRICS – Commerzbank

According to press reports, Turkish President Recep Tayyip Erdogan is seeking to have his country accepted into the group of BRICS states. This group of currently nine states (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, UAE) has no formal admission process, but I could well imagine that Turkey would be welcomed with open arms, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.

Turkey’s deficit current account needs constant financing

“With China, Russia and the UAE, three of the economies with particularly high current account surpluses are BRICS members. And because Turkey’s notoriously deficit current account needs constant financing, it may seem favorable from Erdogan’s point of view not to make the necessary capital inflow dependent on whether profit-oriented lenders consider his country an attractive target for capital flows from an economic point of view.”
“I think Turkey is an economy with extraordinary potential. It should, under normal circumstances, generate an environment in which capital providers line up to invest there. If the government has legitimate concerns about the stability of capital inflows, then these are due entirely to problems of its own making, in particular years of inappropriate monetary policy that have driven inflation to dizzying heights, forcing the central bank to respond with extremely high interest rates.”

“In an ideal world, a government would feel compelled by hesitant lenders to switch to a credible, lasting fight against inflation. Any attempt by Erdogan to secure capital inflows is also an attempt to avoid this step. This may enable the financing of the current account deficits for a long time; it does not bring Turkish politics any closer to a truly sustainable solution.”