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Analysis: President Erdogan’s rate cuts are high-risk gamble ahead of 2023 elections

Turkish President Recep Tayyip Erdogan is putting his political life on the line with a risky wager that driving down interest rates will reverse his skidding opinion polls, despite what is already a heavy economic toll on voters.
The country’s leader of nearly two decades is ploughing on with a “new economic model” he says will boost jobs, growth, exports and cheap credit – and ignoring for now a resulting historic drop in the lira, as well as soaring inflation.

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The policy shift could signal a last-ditch attempt by Erdogan and his ruling AK Party (AKP) to shore up his socially conservative, working and lower middle class voter base ahead of presidential and parliamentary elections in 2023, analysts said.

But surging prices and currency devaluations are already wreaking havoc on Turks’ household budgets and future plans.

In Istanbul’s working class Kasimpasa district, an AKP bastion where Erdogan, a pious Muslim, studied the Koran and played soccer as a boy, few can ignore the rocketing cost of living – and some said it could sway their votes.

“People who come by my teahouse are complaining a lot about prices. The economic struggle is on everyone’s agenda,” said Abdurrahman Erenli, serving tea to a handful of customers across the road from a mosque where Erdogan used to pray.

“People are changing their views due to the situation in the economy. I think votes for the AKP will come down in the next election, for sure, though they still have very solid support.”

It is a far cry from the early years of AKP rule when its pursuit of free market policies and orthodox monetary policy helped to rebuild Turkey’s economy after a deep crisis in 2001.


Under pressure from Erdogan, Turkey’s central bank has slashed its policy rate by 400 basis points to 15 percent since September. It will likely cut again this month, despite inflation that is near 20 percent and is expected to approach 30 percent.

The fallout has been dramatic.

The lira shed some 30 percent in November alone, its second-worst month ever, reflecting Turkey’s deeply negative real rates as well as its high foreign debt and heavy reliance on imports.

Turks are now struggling to find some medicines and buy some other imports such as mobile phones. Opposition leaders are demanding snap elections.

“This country cannot be abandoned to this ignorance anymore,” said IYI Party leader Meral Aksener.

Erdogan’s Islamist-rooted AKP and its nationalist allies MHP are now at level-pegging with an opposition alliance, each with about 39 percent support, according to a MAK Danismanlik poll published on Saturday.

A Metropoll survey showed Erdogan’s job approval has hit a six-year low. Polls also show he would lose to likely presidential candidates including Aksener and Istanbul’s mayor, Ekrem Imamoglu of the main opposition CHP.

“It is clear the ruling alliance is losing support. The steps in the economy need to yield results, otherwise there may be vote losses,” said a senior government official who requested anonymity.

Digging in

A senior AKP official said the new measures would yield benefits by the time of the election.

“Of course we have entered a difficult period (but) what is needed now is time,” the official said.

Reuters has reported, citing sources, that Erdogan ignored appeals in recent weeks, even from within his government, to reverse what he has called Turkey’s “economic war of independence.”

Erdogan has defended the rate cuts six times in the last two weeks and said there is “no turning back,” with almost every speech driving the currency to new record lows.

The lira touched 14 to the dollar on Tuesday, down from 6.9 in February before Erdogan sacked the previous central bank governor and began aggressively pushing his easy-money views.

The depreciations stoke import prices and broader inflation expectations in a country where food prices are up nearly 30 percent from last year.

“The most acute issue is high inflation,” said Can Selcuki, general manager of Istanbul Economics Research, a consultancy.

“I expect the elector sentiment regarding both the government and Erdogan to sour further.”

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Russia has no access to damaged Togliatti-Odesa pipeline: Reports

Russian Industry and Trade minister Denis Manturov said on Thursday that Moscow has no access to the damaged part of the Togliatti-Odesa ammonia pipeline, and does not expect to be granted it, the Interfax news agency reported.

Russia has made the restart of the pipeline, which before the war carried ammonia from Russia to Ukraine for export, central to future renewal of a deal allowing Ukraine to export its grain safely from its Black Sea ports.

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Both Russia and Ukraine this week reported damage to a section of the pipeline that runs through the front line between Russian and Ukrainian forces in Ukraine’s Kharkiv region. The two sides have blamed each other.

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EU launches new effort to resolve longstanding migrant crisis

European Union interior ministers on Thursday made a fresh attempt to overcome one of the bloc’s most intractable political problems as they weighed new measures for sharing out responsibility for migrants entering Europe without authorization.

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Europe’s asylum system collapsed eight years ago after well over a million people entered – most of them fleeing conflict in Syria – and overwhelmed reception capacities in Greece and Italy, in the process sparking one of the EU’s biggest political crises.

The 27 EU nations have bickered ever since over which countries should take responsibility for people arriving without authorization, and whether other members should be obliged to help them cope.

Arriving for the meeting in Luxembourg, the EU’s top migration official, Home Affairs Commissioner Ylva Johansson said it was an “extremely important day” to resolve what has “been a marathon” issue for Europe.

“Of this marathon, we have maybe 100 meters left. So, we are so close to actually find an agreement today,” Johansson said. “I expect the member states to be able to do the final extra meters to reach the agreement.”

“If we are not united, we are all losers,” she said.

Under the existing rules, countries where migrants first arrive must interview and screen them and process the applications of those who might want to apply for asylum. But Greece, Italy and Malta maintain that the burden of managing the numbers of people coming in is too onerous.

Later attempts to impose quota systems on countries to share out the migrants were challenged in court and finally abandoned. EU countries now seem to agree that the assistance they provide must be mandatory but can take the form of financial and other help rather than migration sharing schemes.

The EU’s presidency, currently held by Sweden, has proposed a system under which countries who do not want to take migrants in could pay money instead. Figures of around 20,000 euros ($21,400) per migrant have circulated in the runup to the meeting. It remains unclear if the idea will be accepted.

Diplomats said ahead of the meeting that an agreement is only likely if big member countries France, Germany and Italy back the plan. A deal requires the support of a “qualified majority” – roughly two thirds of the 27 members but crucially also making up about two thirds of the EU population.

German Interior Minister Nancy Faeser said the compromise on the table “is very difficult for us.” She said that “I am fighting for us to have a Europe of open borders,” and warned that “should we fail today … that would be the wrong signal.”

French Interior Minister Gerald Darmanin told reporters that he had come with compromise proposals and that plenty of work remains to be done on what is a “very difficult” issue.

“What we want to do is completely change the situation on migration,” Darmanin said.

His Spanish counterpart, Fernando Grande-Marlaska – whose country has struggled to deal with an influx of people trying to enter from North Africa through Spanish islands in the Atlantic – warned that “if we don’t reach that agreement, I think that all of us will be losers.”

Even if a political agreement is reached Thursday, the member countries must still negotiate a full deal with the European Parliament, which has a different view of solidarity – one that requires countries to draw up detailed “annual migrant support plans” in case of emergency.

Lawmakers have warned that this is a last chance to solve the conundrum before EU-wide elections in a year, when migration is likely once again to be a hot-button issue.

Should the EU fail, the project might have to be abandoned or completely overhauled as it’s taken up by the next European Commission – the bloc’s executive branch – and the new members of parliament after next June’s polls.

“If we miss this chance to make it right, I don’t think we will have another,” Spanish Socialist lawmaker Juan Fernando López Aguilar, a leader on migration policy, said in April. “The kind of a message would be: ‘Hey, listen, it’s not going to happen. Not this time. Ever.’

The long-festering dispute has led to the collapse of Europe's asylum system. Unable to agree, the EU has tried to outsource its migrant challenge, making legally and morally questionable deals with countries like Turkey or Libya, which many people transit through on their way to Europe.

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Indian leader Modi expected to visit Egypt after official US trip: Source

Indian Prime Minister Narendra Modi is expected to travel to Cairo on his way back from an official visit to the US in June, the Times of India reported Thursday, citing official sources.

It will mark the Indian premier’s first visit to the Middle Eastern country. No official announcement has been made.

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Egypt’s President Abdel Fattah al-Sisi joined India’s President Droupadi Murmu and Prime Minister Narendra Modi during a parade celebrating the south-Asian nation’s Republic Day in January 2023.

Ahead of the parade, al-Sisi met with Modi and held talks, including on deepening military cooperation, and invited the Indian premier to Egypt.

The January visit elevated ties between the two countries, especially in counter-terrorism, energy and economy. Egypt and India share historic diplomatic relations.

As for trade, it bilaterally expanded in 2021-22, amounting to $7.26 billion, registering a 75 percent increase compared to 2020-21, according to data provided by the Embassy of India in Cairo.

India’s exports to Egypt during this period amounted to $3.74 billion, registering a 65 percent increase over the same period in 2020-21, the same report said.

Egypt’s exports to India reportedly reached $3.52 billion, registering an 86 percent increase over the previous year.

US President Joe Biden will host Modi at the White House for an official visit from June 21 to 24. They will reportedly address a joint meeting of the House of Representatives and Senate, one of the highest honors Washington affords to foreign dignitaries.

The speech would be Modi’s second to a joint meeting of the US legislature and comes as Biden seeks to deepen ties with the world’s largest democracy as part of his bid to win what he has framed as a contest between free and autocratic societies, especially China.

With Reuters

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