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The struggle to restore Turkey’s stricken economy

DURING TURKEY’S constitutional upheavals in 2016-17, when President Recep Tayyip Erdogan faced down an attempted coup and gathered up new political powers (and prisoners), the country’s economic reformers remembered better days. They talked wistfully of an imminent return to “factory settings”. Turkey, they believed, had a default set of successful policies, from which it had recently deviated and to which it could quickly revert, undoing any mistakes in between.Instead the economy suffered something closer to a system crash. Excessive lending, some of it guaranteed by the government, contributed to rising inflation and a widening current-account deficit. The central bank’s ability to restore order was stymied by Mr Erdogan’s hostility to orthodox monetary policy (he compared interest rates to tools of terrorism). When the government fell out with President Donald Trump over the arrest of an American pastor working in Anatolia, foreign investors (and many Turkish depositors) lost their nerve. Turkey’s currency, the lira, fell by 40% against the dollar in the first eight months of 2018.
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