Türkiye and the BRICS – Commerzbank

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

Türkiye’s current account deficit needs constant financing

“With China, Russia and the UAE, three of the economies with particularly high current account surpluses are members of the BRICS. And because Turkey’s notoriously deficit-ridden 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 economically attractive target for capital flows.”
“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 flows, then these are entirely due 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 forced by hesitant lenders to switch to a credible and lasting fight against inflation. Any attempt by Erdogan to secure capital flows is also an attempt to avoid this step. This may allow current account deficits to be financed for a long time; it does not bring Turkish policy closer to a truly sustainable solution.”