Timothy Ash, British economist and a senior sovereign strategist at RBC Bluebay Asset Management spoke to Harici. He is optimistic about the return of Turkish economy to macro Orthodoxy, said that, “Western capital will come back into Türkiye. Türkiye’s natural place is within the Western Alliance ultimately.”
Answering the questions of journalist Esra Karahindiba, Ash explains his evaluations and predictions about the future of the Turkish economy and the global economic situation.
‘Return to macro Orthodoxy will continue’
In August, you said that it was too early for Mehmet Şimşek and his team to give confidence to the international markets, pointed to the elections in March 2024, and said that Erdoğan could disrupt low interest-economic growth policies again (‘Ağbal Factor’). Just the opposite happened. As 2023 ends, what would you like to say about the future of the Turkish economy?
We are optimistic. I think institutional investors had an obviously very bad experience with the firing of Naci Ağbal, so they need to see that this team is in place for some time, they have been in place for some time. I’m encouraged actually by some of the changes at the Central Bank. It’s not been simply about Minister Şimşek, Governor Hafize Gaye Erkan been appointed but we’ve seen them been able to fill out key roles with very good people. Cevdet Akçay at the Central Bank Deputy Governor is very well known. Also, Hatice Karahan is again very well and very respected economist. So, we’re encouraged that Mehmet Şimşek has been given a very strong mandate. So, I am optimistic that actually we won’t really see much policy moderation around the local elections and I think this return to macro Orthodoxy will continue. We’re optimistic about next year. We are invested in Turkish credit. So, Euro bonds of companies and banks… The question is whether we invest in Lira assets. That’s a different issue. It’s not only the durability of the Orthodox policy in the team, but it’s also are you getting paid enough in terms of Turk government bonds. They pay 20 per cent. Is that enough to offset for inflation? That’s the institutional investors are asking that question now.
‘The market trusts Mehmet Şimşek’
Some of the Turkish economists say that high interest rates are not enough to recover Turkish economy. Do you agree or not?
It’s about credibility also. Mehmet Şimşek has credibility. The market trusts him. His team again very well respected. It’s about higher rates. It’s about macro-financial policy as well. Şimşek has spoken about a new customs arrangement perhaps with the European Union. That sends good confidence about Türkiye’s future orientation. So, things are looking good actually. We’re in a far better place than we imagined perhaps back last May or June. I think, now, next year 2024 should be a much better year for Türkiye.
‘The Gulf wants to see good macro policy in Türkiye’
One of the promises of Şimşek, Central Bank Governor Erkan and their team was to attract Gulf investments to Türkiye. As we approach the end of 2023, it appears that Türkiye has not yet been able to attract the expected investments from the Gulf. Is this situation related to Türkiye, or is there a general decline in foreign direct investments globally?
We have seen a really interesting change in Gulf investments globally. In the old years Saudis used to write big checks for friends to support friendly regimes around the world. Now, they want to be paid back their money. They want good investments. So, whether you see that with Saudi lending to Egypt or Pakistan, they want specific projects, they want good macro-policy and ultimately they want to be paid back. I mean it’s not charity. They want to see good macro policy in Türkiye. Şimşek is rolling that out. Türkiye has lots of interesting projects, I think potentially lots of interesting business opportunities. So, I think this long-term investment from the Gulf will come because I think ultimately Türkiye has lot of positives in terms of its things that attract investors to. I think the Gulf money will ultimately come. Yes. As long as Şimşek is allowed to continue with his very good policy changes that he’s rolling out.
But we don’t have the timeline.
I think certainly within the next year obviously there was this $51 billion agreement with UAE. That’s a lot of money. I’d imagine that that money will be invested over the medium to longer term, so, over a 5-year time horizon. I’m sure we will get some in the next year or so. Projects take time to be worked up. Also, I guess Türkiye has to prove itself also to those countries. If maybe the UEA wrote a check for 51 billion and gave it to Türkiye the without conditionality, I mean maybe there’d be some concern that there’d be scope for Türkiye to go back on the policy changes we’ve seen. They’re not stupid. The rulers of the Gulf regimes are very logical, practical. It’s their money, they’ve earned it. They want to get it paid back with a return. They want to make sure they’re investing in the right place with the right policies. So, you can understand their caution and their dispersing the money over maybe an extended period of time.
‘For China the key relationship is with the US’
Are we in a period where economies are determined by geopolitical tensions? The Ukraine war turned Europe’s energy policies upside down; US-China tensions are remaking development cooperation in Africa, Latin America and Asia. In this case, how do you foresee the economic indicators of a western Türkiye in cooperation with Eurasia for the coming years?
Geopolitics are a complication. It makes understanding the world more difficult. Geopolitical tensions usually happen, they’re usually unexpected, happen from nowhere like the Gaza, the Gaza Crisis. But actually, some things are encouraging in my mind. One is China relations are actually looking in a better place after the San Francisco Summit. There’s a lot of talk about the demise of the dollar. I don’t think that’s the case. If you look at the success of sanctions and the fact that the Western Alliance was unified in application of sanctions on Russia and that few countries are willing to go against sanctions, suggest that the US dollar is still strong. The way China played the crisis in Ukraine, China was very careful not to go out of its way to support Russia. The fact that Russia has been going to North Korea and Iran to find get munitions and military supplies. It means that China is not doing it. I think for China the key relationship is with the US. The US is still the biggest global economy. China has its own economic problems. This idea that ultimately China will get economic hegemony, will be the number one global economy, I don’t think that’s that certain anymore. The Chinese leadership have made mistakes over real estate, over the health sector, over Covid. They’re fallible like us. The US economy has been incredibly resilient. People have been expecting a recession. It doesn’t look like it’s going to be happening. It makes nice sound bites to talk about a new multi-polar world where the US is not this economic powerhouse. It is. And it’s still going to be the dominant global economic player for the next decade, I would say.
‘Western capital will come back into Türkiye’
There are some pools of business and capital like the Middle East, like China etc. But ultimately what we have learned from the last 5 years, 10 years of trade wars, of protectionism, of geopolitical sanctions; the US is still in a very strong position. Whether that lasts when after the next US elections is open to question. But two-third of investment trade and financing comes to Türkiye from the west, from Europe, from the US. Türkiye has most of its businesses with western countries, most of its financing. I think it’s good that Türkiye is going back to some kind of Orthodox policies. Western Capital will come back into Türkiye. Türkiye’s natural place is within the Western Alliance ultimately. Yes, it can diversify its trade and reduce its vulnerabilities by having lots of trade with Africa, with the Middle East etc. That’s good. Why not? But ultimately most of the money, most of the financing comes from the West. That’s the reality. You mentioned the Gulf money has been slow to come. With the right policies, institutional money will come very quickly back to Türkiye. If we see inflation back in single digits, with policy rates going lower, you could see $20 billion of institutional money from the West coming back into Türkiye. That’s possible. Türkiye was getting that. Look at 2007, 2008, 2009, 2010, 2011; the golden years of AKP rule in Türkiye. I think that’s absolutely possible.
‘The dollar is still king’
Going back to that you just mentioned about de-dollarization; that’s a big question. It is being discussed in Asian world and in China, in Russia, even certain Arab countries who sell their oil only with their own national currency. What do you think about the de-dollarization discussions? Do you think it can come up to happen one day?
The dollar is still king. I don’t think people particularly would like one in your pocket rather than a dollar. I mean in the end it’s trusting the institutions. In the end, international players trust western institutions. They trust the dollar. They trust the FED. They trust the European Central Bank. That’s the reality. I don’t think they particularly trust emerging market currencies that much. And China has still an emerging market currency. I think we’re a long way from having real rivals to the dollar and the euro.
‘The intention is not to crash Russia’
Let’s also talk about the sanctions that was one of the things you mentioned but at the end of the day when you go to Russia, you look at Russian economy’s numbers, yes, there are sanctions. They’re out of the international banking system and etc. They cannot export certain things but you see that Western sanctions could not harm Russian economy as much as they wanted to succeed. Why is that?
Well, sanctions are a complicated business. When you impose sanctions, you want to hurt the country, you’re sanctioning more than you. We’re in a global economy. Russia is integrated into global markets. The West was very careful not to be overly disruptive to global markets. So, the intention is not to crash Russia, not to crash the Russian economy that has global impact. So, you got to be very careful how you roll these things out. I ultimately think sanctions are weakening Russia. You’ve seen capital flights. You have seen human brain drain out of Russia. Russia has lost about 300 billion of its foreign exchange reserves. The ruble has weakened. Türkiye should know this; a currency weakens because ultimately your balance of payments is not sustainable. The ruble has gone from 50 to 100, it suggests to me that actually it’s Russia’s not winning. I mean strong countries have strong currencies. The ruble is not strong. Also, the fact that Russia is spending so much time lobbying gang sanctions suggest it’s not working. Sanctioned countries like Iran, Iraq, North Korea, Venezuela, Cuba… They survive. I mean countries’ economies don’t stop. They learn how to work around sanctions. And sanctions are a constant iteration. The target constantly does things to try and get around them. You have to tighten them. This is what it is. But ultimately is Russia a good place to do business? Is Russia a place that international business wants to invest in? No. What does that mean? Ultimately lower longer-term growth and decline. Russia will not be able to regenerate its military machine as quickly as he wants to, because of Western sanctions. So, sanctions are not a silver bullet. They are one tool in the Western’s armory. We have an interest in the west I think in weakening Russia because Russia is a threat it’s invaded Ukraine. It’s been a bad global player, intervention in Syria, intervened in Georgia and plenty of places. We want that to stop. It’s a threat to us. It’s a threat to the western system and western liberal market and democracy. We need to weaken Russia’s military industrial complex so the sanctions have to remain in place. That’s the reality.
What David Cameron said in Washington is actually pointing out the Western countries like Britain and the US becoming crueler than Russia itself because -I’m paraphrasing- he said “we are spending only 10% of our defense budget and we are using the courage and bravery of Ukrainian men and we are harming Russia’s human force and armed force reducing them 50% comparing to prior to pre-war situation.” That was terrifying.
I mean Ukrainians are fighting not because we give them the money or we sanction Russia. They’re fighting to defend their own country. Because Russia has invaded. Russia stole Crimea. Crimea is not Russian. If Ukrainians want, if Ukrainians are happy for Russian dominance and rule, they’ll lay down their arms and not fight. They are fighting so they’re fighting for their own country because Russia’s invaded. That’s the reality. Sure, it’s sad that Western support has not been stronger for Ukraine. I think if we’d have provided weapons earlier, the Ukrainians would have been able to push Russia back sooner. That’s our fault.
‘We need to do more to support the Ukrainians’
But what Cameron says is something else. You’re just using Ukrainians. You’re just letting them to fight and die for the advantage of the US and Britain.
I can’t comment on what he said. I didn’t hear the phrase. But, look, the reality is Ukrainians are dying to defend us. That’s a fact. They they’re fighting to defend themselves, their own country. But Ukraine is the front line for Poland, for the Baltic states, for Western Europe. If Putin wins in Ukraine, he’ll go further. He’ll do more stuff. So, you’re right. I mean, Cameron’s point was that we need to do more to support the Ukrainians because they’re not just defending themselves, they’re defending us. That’s a fact.
He said “this is a great investment” at the end of his sentences.
I would agree with him. It’s the best investment in our defense. Helping the Ukrainians stop the Russians. From a Turkish perspective, is a Russian victory in Ukraine a good thing that Russia captures the whole of Ukraine dominates more of the Black Sea? I don’t think Russia will then stop being an aggressive power in your region around the Black Sea. Putin has proven that he’s not a global player. He doesn’t play by the rules. He wants to expand Russia’s borders. So, I think, the west and Türkiye have an interest in stopping Putin and Ukrainians are helping us do that.
‘US invasion of Iraq was an error’
So, I’m not going to ask you about the US was invading Afghanistan and Iraq and etc. But this is what big global players do to the world.
Well, I didn’t support the US personally. I didn’t support the US invasion of Iraq in 2003. It was counterproductive. That’s my personal view. It was a mistake. Many British people didn’t support it. Many European countries didn’t support it. That was a Tony Blair, George Bush decision. It was an error. Afghanistan… Usama Bin Laden committed a terrorist attack a 9/11 on the US. I think the US had a reason to go into Afghanistan to defeat al-Qaeda in Afghanistan. Correct. Iraq was a totally different story. Now, the West have done many mistakes globally. I said I was critical of US invasion of Iraq in 2003. I disagree with how the west have managed the crisis in Gaza. There should be a ceasefire. There needs to be a political solution. Palestinians have same rights as Israelis. I agree with that. But it doesn’t distract from the fact that Ukraine has been an independent state for 30 years. Russia has invaded Ukraine. It has taken Ukrainian territory that is not Russia’s. It has murdered thousands of civilians as many Palestinians have died in Gaza as well. Remember, Putin did exactly the same in Syria. Russia and Assad, Russian bombs killed many Syrian civilians in Syria. The West’s mistake was that we didn’t do anything about it. Obama’s famous red lines… We should have known, we should have learned already. He did in Grozny in his own country in Chechenia. This is a bad guy. We should recognize that. Finally, the west should wake up to the fact that we need to stop this guy, and Türkiye should too. So, I mean the fact that the West has made mistakes in Iraq and is now making mistakes in Gaza, doesn’t mean that the Ukrainians don’t have a right to defend their own country and that Russia has a right to take Ukraine. So it doesn’t mean that we should stop.
‘Expanding BRICS to include Iran is not a good idea’
Okay. Let’s go back to economics. Can you comment about the BRICS and the global South are they kind of in near future going to be dominating the global economy also because the rise of India, the rise of China… And the US used to have 75% of the world economics but we don’t have that balance anymore. Things are changing. The economy, the global economy is also changing. Can you comment on the role of BRICS and Global south?
Well, BRICS… I mean what has it achieved particularly? I don’t know how long it’s been existed? In 10 years or whatever? Actually, what is it? What is BRICS entity? It’s been expanded. I mean, is expanding BRICS to include Iran a good idea? I don’t particularly think so. India was not particularly happy with some of the countries that were added to the list. You explain to me what BRICS really is. Türkiye is not a member of it. I think we’ve seen global growth. Energy markets have been growing very rapidly. We’ve seen new senses of economic power and diversification. That’s all good. Global diversification is a good idea. Too much power in the US or whatever is a more balanced global story is definitely a good idea. What we’ve learned in recent years has been that China is not doing that well. I mean, it’s making made a bad decision around Covid, bad decisions about real estate now, its growth model is in question. So, I’m not sure… In the end the US economy has proved very durable, say, no recession.
‘The pluses and negatives about the Belt and Road’
Can you comment on One Belt One Road project? China is actually, even though you say that it’s not performing super, by this project it’s causing interdependency in the region. And it’s using this project as a leverage for growing its own economy. This is something positive from Chinese perspective. And can you comment in the long term will this help China’s economy to grow globally?
Well, there have been positives and negatives about “One Belt One Road”. Clearly, it’s given capital to poor countries so they can develop infrastructure. That’s been good. The problem is it’s burdened a lot of the countries with debt. Recently, a lot of the countries that borrowed from China such as Zambia and Sri Lanka have been gone in debt problems. Pakistan is another example. Unfortunately, “the One Belt One Road” model has been lend the country’s money at the price of Chinese market access. I mean that’s the price. The question is whether Chinese goods come in and often destroy a lot of domestic industry. It’s the track record has been that it’s destroyed countries export potential. They have a lot of debt but they can’t pay it back because Chinese goods have come in and made local goods not competitive. Pakistan’s a great example. Pakistan borrowed a lot of money, got some infrastructure, built some stuff, some power generation stuff. But actually, Chinese goods have come and destroyed, say, the Pakistan shoe industry which used to be a big export. And now they can’t compete. So, there are challenges. It’s there the way it’s been done has probably been not the best it can be. China is now having to address the debt problems that it’s created in countries like Zambia and Sri Lanka and possibly Pakistan. I said, the pluses and negatives about it.
‘I am pretty worried about 2050’
Lastly, can you give me your brief foresight about 2050? How do you see global economies picture? Who is going to be where and how?
Wow, 2050. I mean I am pretty worried. I mean, climate change what we seeing the lack of… I’m not particularly an environmental specialist but it must be clear to everyone. Climate change, climate crisis every year is getting more difficult. We have the US presidential elections. Trump is coming in. That’s probably the biggest risk. I did a survey on my Twitter account. It’ the biggest geopolitical risk next year. I think the biggest number was the Trump presidency. What that means? US… You knw, I am British. I’m not a big fan of the US. But is the world… Is an isolationist US that the US that withdraws from international diplomacy a good is that actually a good thing? We can criticize the US in many places like the Middle East in terms of policy probably. But if it steps back, it’s less multilateralism. Climate change needs a multilateral approach. Trump doesn’t believe in any of that. Is that going to be good? Or is the US becoming more protectionist under a Trump presidency? Is that a good thing? I don’t know. So, the world’s looking pretty concerning. I have to say. It’s 2050 is quite a long way away but at the moment with climate change that looks worrying for our children, I think.
