Anti-Corruption Watchdog: Most Countries Ignore Anti-Foreign Bribery Laws  

A new report by Transparency International suggests foreign bribery is alive and well. 

The report, by the Berlin-based, anti-corruption watchdog, suggests little has changed in recent years in the way governments enforce their anti-bribery laws. Today, only seven major exporting countries actively crack down on companies that offer bribes to foreign officials in exchange for favorable business deals.

The United States is one of the seven countries, which together account for 27 percent of world exports, Transparency International said. The others are Germany, Israel, Italy, Norway, Switzerland and the United Kingdom. 

2016 a record year

Between 2014 and 2017, the United States launched at least 32 investigations, opened 13 cases and concluded 98 cases involving foreign bribery, according to the report. Enforcement activity surged in 2016, resulting in a record $2.5 billion in penalties levied by U.S. authorities. 

Among several high-profile foreign graft cases adjudicated in the United States, the report cited a case in which British aircraft engine maker Rolls-Royce payed law enforcement authorities in the United States, Britain and Brazil $800 million in 2017 to resolve allegations of bribing officials in at least a dozen countries over more than two decades

The report rated the performance of 44 major exporting countries, including 40 nations that have signed the Organization of Economic Cooperation and Development’s (OECD) Anti-Bribery Convention. The 1997 compact requires signatories to make it a crime for companies and individuals in their countries to bribe foreign officials. 

Transparency International’s last report on the topic, released in 2015, listed just four countries with active anti-foreign bribery law enforcement: Germany, Switzerland, Britain and the U.S.

But the elevation of Israel, Italy and Norway to the ranks of countries with vigorous anti-foreign bribery enforcement was offset by declining levels of enforcement in four other countries: Austria, Canada, Finland and South Korea. 

“Disappointingly, there has been little change in the overall enforcement level (taking the share of world exports into account) since the last report,” the report said. 

‘Limited’ enforcement

Of the 44 countries examined by Transparency International, four — Australia, Brazil, Portugal and Sweden  had “moderate” anti-foreign bribery law enforcement; 11 had “limited” enforcement, while 22, including Russia and China, had “little to no” enforcement. Argentina, Brazil and Chile were among countries that improved their enforcement. 

For the first time, Transparency rated the performance of China, Hong Kong, India and Singapore  all non-OECD countries that have not signed the organization’s anti-graft convention — and put them all in its lowest rung of enforcement. 

Concern about Chinese corporate bribery of foreign officials has heightened since Beijing rolled out its ambitious Belt and Road Initiative in 2013. But Transparency said there were no known foreign bribery cases or investigations brought by the Chinese government between 2014 and 2017. 

The watchdog said that China has recently “signaled” that it may focus more on foreign bribery enforcement, noting that Beijing and the World Bank held a symposium last year that focused, in part, on corruption risks associated with Belt and Road projects. 

‘Naive’ suggestion

To close the enforcement gap, Transparency recommended that all four sign the OECD convention.

Stuart Gilman, a former head of the United Nations global program against corruption, called the recommendation “naive.”

For China and Russia, “corruption and whatever way they can influence other governments is, in effect, part of their foreign policy,” Gilman said. “I think in my discussions with Chinese officials — not officially but reading between the lines — they see it as one among many tools to extend the influence of China around the world, from the Silk Road to Africa to other areas of the world.”

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Anti-Corruption Watchdog: Most Countries Ignore Anti-Foreign Bribery Laws  

A new report by Transparency International suggests foreign bribery is alive and well. 

The report, by the Berlin-based, anti-corruption watchdog, suggests little has changed in recent years in the way governments enforce their anti-bribery laws. Today, only seven major exporting countries actively crack down on companies that offer bribes to foreign officials in exchange for favorable business deals.

The United States is one of the seven countries, which together account for 27 percent of world exports, Transparency International said. The others are Germany, Israel, Italy, Norway, Switzerland and the United Kingdom. 

2016 a record year

Between 2014 and 2017, the United States launched at least 32 investigations, opened 13 cases and concluded 98 cases involving foreign bribery, according to the report. Enforcement activity surged in 2016, resulting in a record $2.5 billion in penalties levied by U.S. authorities. 

Among several high-profile foreign graft cases adjudicated in the United States, the report cited a case in which British aircraft engine maker Rolls-Royce payed law enforcement authorities in the United States, Britain and Brazil $800 million in 2017 to resolve allegations of bribing officials in at least a dozen countries over more than two decades

The report rated the performance of 44 major exporting countries, including 40 nations that have signed the Organization of Economic Cooperation and Development’s (OECD) Anti-Bribery Convention. The 1997 compact requires signatories to make it a crime for companies and individuals in their countries to bribe foreign officials. 

Transparency International’s last report on the topic, released in 2015, listed just four countries with active anti-foreign bribery law enforcement: Germany, Switzerland, Britain and the U.S.

But the elevation of Israel, Italy and Norway to the ranks of countries with vigorous anti-foreign bribery enforcement was offset by declining levels of enforcement in four other countries: Austria, Canada, Finland and South Korea. 

“Disappointingly, there has been little change in the overall enforcement level (taking the share of world exports into account) since the last report,” the report said. 

‘Limited’ enforcement

Of the 44 countries examined by Transparency International, four — Australia, Brazil, Portugal and Sweden  had “moderate” anti-foreign bribery law enforcement; 11 had “limited” enforcement, while 22, including Russia and China, had “little to no” enforcement. Argentina, Brazil and Chile were among countries that improved their enforcement. 

For the first time, Transparency rated the performance of China, Hong Kong, India and Singapore  all non-OECD countries that have not signed the organization’s anti-graft convention — and put them all in its lowest rung of enforcement. 

Concern about Chinese corporate bribery of foreign officials has heightened since Beijing rolled out its ambitious Belt and Road Initiative in 2013. But Transparency said there were no known foreign bribery cases or investigations brought by the Chinese government between 2014 and 2017. 

The watchdog said that China has recently “signaled” that it may focus more on foreign bribery enforcement, noting that Beijing and the World Bank held a symposium last year that focused, in part, on corruption risks associated with Belt and Road projects. 

‘Naive’ suggestion

To close the enforcement gap, Transparency recommended that all four sign the OECD convention.

Stuart Gilman, a former head of the United Nations global program against corruption, called the recommendation “naive.”

For China and Russia, “corruption and whatever way they can influence other governments is, in effect, part of their foreign policy,” Gilman said. “I think in my discussions with Chinese officials — not officially but reading between the lines — they see it as one among many tools to extend the influence of China around the world, from the Silk Road to Africa to other areas of the world.”

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Democrats Announce Big Online Ad Play for US Midterms

Two major Democratic political groups on Wednesday announced a combined $21 million digital ad buy targeting Senate races in November, a sign the party is trying to learn from 2016, when Donald Trump’s Republican presidential campaign was far more aggressive online.

Priorities USA and Senate Majority PAC announced $18 million in joint spending in Arizona, Indiana, Florida, Missouri and North Dakota. Senate Majority PAC also tacked on an additional $3 million in ads targeting Montana, Nevada, Tennessee and West Virginia.

“For the last, really, six years, the Democrats have had their hats handed to them when it comes to digital,” Guy Cecil, the chairman of Priorities USA, which is exclusively funding digital ads and outreach this election cycle, said in an interview. “We needed to close the gap.”

The move comes as Democrats and Republicans are fighting furiously over control of the Senate, where the GOP has a 51-49 edge. Although almost all competitive seats are in states Trump won in 2016, Republicans are increasingly alarmed about the strength of Democratic candidates in states including Tennessee, Texas and Arizona.

GOP edge on Google

The size of the campaign is significant. According to Priorities USA, $7 million has been spent on advertising for Senate races on Google since May 31, with Republicans outspending Democrats 60-40. Facebook did not have comparable data. And through the end of August, Senate Majority PAC, one of the biggest Democratic financial organizations in the battle over control of the upper chamber, spent $37 million in ads on television and radio, according to the Center for Responsive Politics.

J.B. Poersch, president of Senate Majority PAC, said it’s important to maintain a mix of traditional television and radio ads along with digital. But for years, he said, “I don’t think we had digital at the adults’ table.”

The conventional wisdom in politics is that Democrats dominated in digital during much of the Obama years because they were more advanced in gathering online data and using it to target voters. But that changed in 2016, when the Trump campaign outspent Hillary Clinton’s Democratic campaign nearly 2-to-1 online, according to a Priorities USA presentation to donors obtained by The Associated Press. The outspending also stretched to various House races. Right-leaning groups, meanwhile, registered vastly more online domains through the beginning of 2017.

Since 2016, Democrats have increasingly focused on digital as a way to strike back against the GOP, with liberal Silicon Valley entrepreneurs holding trainings for Democratic campaigns and some liberal insurgent candidates, like Alexandria Ocasio-Cortez in New York City and Ayanna Pressley in Boston, winning recent primaries with minimal television ads and instead relying mostly on digital ones.

In-house agency

The GOP continues to invest in both digital and traditional advertising, but no Republican organization of comparable prominence to Priorities has announced an all-digital strategy. Priorities has even formed its own in-house digital ad agency to build spots for its campaigns, including a previously announced $12 million buy targeting House races.

Damon McCoy, a New York University professor who analyzed Facebook political ad spending data earlier this summer, said Democratic and Republican groups spend at comparable rates on the platform with one significant exception: Trump. The president’s own re-election campaign was the biggest political ad spender in the analysis that McCoy and other academics conducted.

Minus the president’s campaign, “spending is fairly split between liberal and conservative candidates and political organizations,” McCoy said. 

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Democrats Announce Big Online Ad Play for US Midterms

Two major Democratic political groups on Wednesday announced a combined $21 million digital ad buy targeting Senate races in November, a sign the party is trying to learn from 2016, when Donald Trump’s Republican presidential campaign was far more aggressive online.

Priorities USA and Senate Majority PAC announced $18 million in joint spending in Arizona, Indiana, Florida, Missouri and North Dakota. Senate Majority PAC also tacked on an additional $3 million in ads targeting Montana, Nevada, Tennessee and West Virginia.

“For the last, really, six years, the Democrats have had their hats handed to them when it comes to digital,” Guy Cecil, the chairman of Priorities USA, which is exclusively funding digital ads and outreach this election cycle, said in an interview. “We needed to close the gap.”

The move comes as Democrats and Republicans are fighting furiously over control of the Senate, where the GOP has a 51-49 edge. Although almost all competitive seats are in states Trump won in 2016, Republicans are increasingly alarmed about the strength of Democratic candidates in states including Tennessee, Texas and Arizona.

GOP edge on Google

The size of the campaign is significant. According to Priorities USA, $7 million has been spent on advertising for Senate races on Google since May 31, with Republicans outspending Democrats 60-40. Facebook did not have comparable data. And through the end of August, Senate Majority PAC, one of the biggest Democratic financial organizations in the battle over control of the upper chamber, spent $37 million in ads on television and radio, according to the Center for Responsive Politics.

J.B. Poersch, president of Senate Majority PAC, said it’s important to maintain a mix of traditional television and radio ads along with digital. But for years, he said, “I don’t think we had digital at the adults’ table.”

The conventional wisdom in politics is that Democrats dominated in digital during much of the Obama years because they were more advanced in gathering online data and using it to target voters. But that changed in 2016, when the Trump campaign outspent Hillary Clinton’s Democratic campaign nearly 2-to-1 online, according to a Priorities USA presentation to donors obtained by The Associated Press. The outspending also stretched to various House races. Right-leaning groups, meanwhile, registered vastly more online domains through the beginning of 2017.

Since 2016, Democrats have increasingly focused on digital as a way to strike back against the GOP, with liberal Silicon Valley entrepreneurs holding trainings for Democratic campaigns and some liberal insurgent candidates, like Alexandria Ocasio-Cortez in New York City and Ayanna Pressley in Boston, winning recent primaries with minimal television ads and instead relying mostly on digital ones.

In-house agency

The GOP continues to invest in both digital and traditional advertising, but no Republican organization of comparable prominence to Priorities has announced an all-digital strategy. Priorities has even formed its own in-house digital ad agency to build spots for its campaigns, including a previously announced $12 million buy targeting House races.

Damon McCoy, a New York University professor who analyzed Facebook political ad spending data earlier this summer, said Democratic and Republican groups spend at comparable rates on the platform with one significant exception: Trump. The president’s own re-election campaign was the biggest political ad spender in the analysis that McCoy and other academics conducted.

Minus the president’s campaign, “spending is fairly split between liberal and conservative candidates and political organizations,” McCoy said. 

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US Seeks to Impose Cost for Election Meddling

The United States is hoping to use the threat of calibrated sanctions to deter individuals, companies or countries from attempting to interfere with the midterm elections in November.

President Donald Trump signed an executive order Wednesday authorizing automatic sanctions against actors or entities assessed to have meddled with elections, whether by attacking America’s election infrastructure or through the use of propaganda and disinformation campaigns.

“It’s a further effort, among several that the administration has made, to protect the United States against foreign interference in our elections and really our political process more broadly,” National Security Adviser John Bolton said Wednesday while briefing reporters.

“We felt it was important to demonstrate the president has taken command of this issue, that it’s something he cares deeply about,” Bolton added. “This order, I think, is a further demonstration of that.”

Russian meddling attempts

There have been ongoing concerns about possible attempts by Russia to meddle with the upcoming November vote as a follow-up to what intelligence officials have assessed to be a fairly successful effort to meddle with the 2016 U.S. presidential election.

But Bolton and Director of National Intelligence Dan Coats said the new executive order is not country specific, citing evidence that China, Iran and North Korea may also be working to influence the midterm election in November.

“We see attempts,” Coats told reporters Wednesday, repeating previous assertions that the U.S. intelligence community has yet to see “the intensity of what happened back in 2016.”

“In terms of what the influence is and will be, we continue to analyze all that,” Coats added. “This is an ongoing effort here, and it has been for a significant amount of time, and will continue on a, literally, 24-hour-a-day basis until the election.”

The new executive order gives U.S. intelligence agencies 45 days after an election to report any efforts to meddle with the outcome.

The U.S. attorney general and the Department of Homeland Security will then have 45 days to review those findings. If they agree with the assessment, it would trigger automatic sanctions.

Those sanctions could include blocking access to property and interests, restricting access to the U.S. financial system, prohibiting investment in companies found to be involved, and even prohibiting individuals from entering the U.S.

Additionally, the order authorizes the State Department and the Treasury Department to impose further sanctions, if deemed necessary.

Bolton denied that recent criticism of Trump, and his interactions with President Vladimir Putin during their summit in Helsinki, played any role in issuing the executive order. In Helsinki, Trump told reporters he accepted Putin’s denial of Russian meddling in the 2016 election over the U.S. intelligence community’s assessment and later tried to clarify his statement in a tweet affirming support for the intelligence community.

“The president has said repeatedly that he is determined that there not be foreign interference in our political process,” Bolton said. “Today he signed this executive order, so I think his actions speak for themselves.”

Additional measures possible

Still, Bolton left open the possibility that the White House could work with U.S. lawmakers on additional measures.

Already, members of Congress have introduced various pieces of legislation aimed at setting out stiff penalties for Russia and other countries who seek to meddle with the U.S. electoral process.

And some lawmakers said Wednesday the Trump administration’s latest effort does not go far enough.

“An executive order that inevitably leaves the president broad discretion to decide whether to impose tough sanctions against those who attack our democracy is insufficient,” Mark Warner, the Democratic ranking member of the Senate Intelligence Committee, said in a statement.

“If we are going to actually deter Russia and others from interfering in our elections in the future, we need to spell out strong, clear consequences, without ambiguity,” Warner added.

Republican Senator Marco Rubio said that while the order is a step in the right direction, it is not enough.

“The @WhiteHouse & @POTUS deserve credit for taking this action. They did as much as they could do with an executive order but are limited from going further without legislation,” he tweeted.

Both Democratic and Republican lawmakers have been critical of Trump for failing to fully enact a sanctions law that they passed over a year ago, even though the U.S. Treasury Department did impose major sanctions against 24 Russians as a result.

But Senate Intelligence Committee Chairman Republican Richard Burr expressed hope late Wednesday the new executive order will “send a clear message” to Russia, Iran and others.

“[The executive order] strengthens our ability to quickly and appropriately hold responsible anyone who interferes in our elections,” Burr said in a statement.

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Updated Apple System Takes on Smartphone Addiction

Apple’s polished iPhone line-up comes with tools to help users dial back their smartphone obsessions, amid growing concerns over “addiction” and harmful effects on children.

An iOS 12 mobile operating system that will power new iPhones unveiled on Wednesday, and be pushed out as an update to prior models, has new features to reduce how much they distract people from the real world.

Apple senior vice president of software engineering Craig Federighi said of iOS 12 at a developers conference earlier this year the new system offers “detailed information and tools” to help users and parents keep tabs on device use.

A new “Screen Time” tool generates activity reports showing how often people pick up their iPhones or iPads, how long they spend in apps or at websites, and numbers of notifications received.

Users will be able to set limits on time spent in apps. Parents will be able to get activity reports from their children’s iPhones or iPads, and impose time limits on apps from games and news to social media and messaging.

The operating system will also allow people to designate “down time” when iPhones or iPads can’t be used — perhaps a child’s bedtime or a grown-up’s meditation hour.

Activist investor Jana Partners and the California State Teachers’ Retirement System (CalSTRS), which both have stakes in Apple, early this year called on the company to give parents more tools to ensure children are using its devices in ways that aren’t hurting them.

The investors reasoned that doing so would pose no threat to Apple, because the company makes the bulk of its money selling devices, not from how much people use them.

Apple has been working to ramp up revenue from services and digital content such as music and movies, but most of the cash it takes in comes from iPhone sales.

The letter cited a growing body of evidence that excessive smartphone use may be having negative consequences on young people.

A study of teachers found the vast majority felt smartphones were a growing distraction at schools, eroding the ability of students to focus in class and a seeming cause of social and emotional difficulties.

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Updated Apple System Takes on Smartphone Addiction

Apple’s polished iPhone line-up comes with tools to help users dial back their smartphone obsessions, amid growing concerns over “addiction” and harmful effects on children.

An iOS 12 mobile operating system that will power new iPhones unveiled on Wednesday, and be pushed out as an update to prior models, has new features to reduce how much they distract people from the real world.

Apple senior vice president of software engineering Craig Federighi said of iOS 12 at a developers conference earlier this year the new system offers “detailed information and tools” to help users and parents keep tabs on device use.

A new “Screen Time” tool generates activity reports showing how often people pick up their iPhones or iPads, how long they spend in apps or at websites, and numbers of notifications received.

Users will be able to set limits on time spent in apps. Parents will be able to get activity reports from their children’s iPhones or iPads, and impose time limits on apps from games and news to social media and messaging.

The operating system will also allow people to designate “down time” when iPhones or iPads can’t be used — perhaps a child’s bedtime or a grown-up’s meditation hour.

Activist investor Jana Partners and the California State Teachers’ Retirement System (CalSTRS), which both have stakes in Apple, early this year called on the company to give parents more tools to ensure children are using its devices in ways that aren’t hurting them.

The investors reasoned that doing so would pose no threat to Apple, because the company makes the bulk of its money selling devices, not from how much people use them.

Apple has been working to ramp up revenue from services and digital content such as music and movies, but most of the cash it takes in comes from iPhone sales.

The letter cited a growing body of evidence that excessive smartphone use may be having negative consequences on young people.

A study of teachers found the vast majority felt smartphones were a growing distraction at schools, eroding the ability of students to focus in class and a seeming cause of social and emotional difficulties.

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Apple Unveils Larger iPhones, Health-Oriented Watches

Apple Inc unveiled larger iPhones and watches based on the design of current models on Wednesday, confirming Wall Street expectations that the company is making only minor changes to its lineup.

The world’s most valuable tech company wants users to upgrade to newer, more expensive devices as a way to boost revenue as global demand for smartphones levels off. The strategy has helped Apple become the first publicly-traded U.S. company to hit a market value of more than $1 trillion earlier this year.

Its shares were down 1.2 percent on Nasdaq. Apple uses the ‘S’ suffix when it upgrades components but leaves the exterior design of a phone the same. Last year’s iPhone X — pronounced “ten” — represented a major redesign.

The new phones are the XS, with a 5.8-inch (14.7-cm) screen, the larger XS Max, with a 6.5-inch (16.5-cm) screen, and a 6.1-inch iPhone Xr made of aluminum, with an edge-to-edge liquid retina display.

Apple, which is looking for ways to lessen reliance on phones for revenue, opened its event by announcing the new Apple Watch Series 4 range with edge-to-edge displays, like its latest phones, which are more than 30 percent bigger than displays on current models.

It is positioning the new watch as a more comprehensive health device, able to detect an irregular heartbeat and start an emergency call automatically if it detects a user falling down, potentially appealing to older customers. It said it had approval for the device from the U.S. Food and Drug Administration.

The FDA said it worked with Apple to develop apps for the Apple Watch. The agency said it has been taking steps to ease the regulatory pathway for companies seeking to create digital healthcare products.

Shares of fitness device rival Fitbit Inc fell about 3.7 percent after the Series 4 announcement. Shares of Garmin Ltd lost some earlier gains and were flat in midday New York trade.

Executives made the announcement at the Steve Jobs Theater at Apple’s new circular headquarters in Cupertino, California, named after the company’s co-founder who wowed the world with the first iPhone in 2007.

“There’s no real game-changer on the table,” said Hal Eddins, chief economist at Apple shareholder Capital Investment Counsel. “It’s a matter of getting people to keep moving up.”

The company is also expected to unveil a new version of its wireless AirPods earbuds with wireless charging and a wireless mat that will be able to charge several devices at once.

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Apple Unveils Larger iPhones, Health-Oriented Watches

Apple Inc unveiled larger iPhones and watches based on the design of current models on Wednesday, confirming Wall Street expectations that the company is making only minor changes to its lineup.

The world’s most valuable tech company wants users to upgrade to newer, more expensive devices as a way to boost revenue as global demand for smartphones levels off. The strategy has helped Apple become the first publicly-traded U.S. company to hit a market value of more than $1 trillion earlier this year.

Its shares were down 1.2 percent on Nasdaq. Apple uses the ‘S’ suffix when it upgrades components but leaves the exterior design of a phone the same. Last year’s iPhone X — pronounced “ten” — represented a major redesign.

The new phones are the XS, with a 5.8-inch (14.7-cm) screen, the larger XS Max, with a 6.5-inch (16.5-cm) screen, and a 6.1-inch iPhone Xr made of aluminum, with an edge-to-edge liquid retina display.

Apple, which is looking for ways to lessen reliance on phones for revenue, opened its event by announcing the new Apple Watch Series 4 range with edge-to-edge displays, like its latest phones, which are more than 30 percent bigger than displays on current models.

It is positioning the new watch as a more comprehensive health device, able to detect an irregular heartbeat and start an emergency call automatically if it detects a user falling down, potentially appealing to older customers. It said it had approval for the device from the U.S. Food and Drug Administration.

The FDA said it worked with Apple to develop apps for the Apple Watch. The agency said it has been taking steps to ease the regulatory pathway for companies seeking to create digital healthcare products.

Shares of fitness device rival Fitbit Inc fell about 3.7 percent after the Series 4 announcement. Shares of Garmin Ltd lost some earlier gains and were flat in midday New York trade.

Executives made the announcement at the Steve Jobs Theater at Apple’s new circular headquarters in Cupertino, California, named after the company’s co-founder who wowed the world with the first iPhone in 2007.

“There’s no real game-changer on the table,” said Hal Eddins, chief economist at Apple shareholder Capital Investment Counsel. “It’s a matter of getting people to keep moving up.”

The company is also expected to unveil a new version of its wireless AirPods earbuds with wireless charging and a wireless mat that will be able to charge several devices at once.

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Crashing Turkish Lira in the Balance Before Central Bank Meeting

The Turkish central bank is facing growing pressure to decisively hike interest rates at a meeting Thursday to defend an ailing currency and rein in double-digit inflation.  But concerns remain over President Recep Tayyip Erdogan’s grip on monetary policy.

The Turkish lira has fallen more than 40 percent, much of it in the past few weeks, fueling rampant inflation.  

”Just to keep up with the acceleration of inflation the central bank needs to hike by more than 400 basis points,” said chief economist Inan Demir of Nomura International, “This is only to keep up with the acceleration in inflation, since last formal hike.  If we consider the prospect of a further acceleration inflation outlook, perhaps more is needed [interest rate hikes],” he added.

Demir says what has accelerated heavy lira falls are investor concerns the central bank can’t act decisively because of Erdogan, who has sweeping executive powers.  He has repeatedly voiced opposition to high-interest rates, which he claims “enslaves poor people.”

In a statement, this month the central bank declared it was ready to alter monetary policy to rein in inflation.  Financial markets interpreted the comment as the bank preparing to hike rates aggressively.  “The statement suggests we will see some action,” Demir said, “but I am not very confident the policy response will be as large as the markets need.”

This week, Finance Minister Berat Albayrak sought to talk up the Turkish economy, claiming the financial system was already “correcting itself.”  

Albayrak is the president’s son in law and widely seen as having the inside track with  Erdogan.  Some analysts suggest Albayrak’s positive statements may be seeking to play down the need for a significant increase in interest rate.

Misjudging international investors expectations could be costly.  “There will be massive sell off to the point of a panic if they don’t raise rates enough,” said political analyst Atilla Yesilada of Global Source Partners, “the sky’s limit, there is no way to make a rational forecast on the exchange rate, because we really don’t know when it stops,” he added.

Analysts warn a further decline in the lira risks undermining the Turkish public’s faith in the currency will lead them to convert their savings into dollars, adding pressure to the currency and risking the economy falling into a vicious cycle.

“Lira weakness feeds into inflation,” Demir said, “insufficient action by the central bank leads to deposit dollarization, which feeds into lira weakness, and that feeds into inflation again.”

 

“Past experiences in Turkey show, a sharp slow down of the economy followed after sharp depreciation,” Demir said, “the GDP [Gross Domestic Product – the size of the economy] growth rate [has] dropped off by 11 to 13 percent, that is the big risk we are looking at for Turkey.”

International banks are forecasting the Turkish economy heading into recession next year.  The timing for Erdogan could not be worse.  In March, Turkey holds critical local elections for the country’s biggest cities, one of the few places where opposition parties still have the opportunity to exercise power.  Erdogan has made it a priority to win the March polls.

Erdogan is likely to be aware, with many of Turkey’s big companies heavily indebted, a further hike in interest rates also risks driving the economy further into recession.

 

But interest rate hikes on their own may not be enough to address investor concerns and restore stability to the currency.  “A package of reforms is needed,” Demir said.

The World Bank has warned Turkey to rein in massive state building projects it says are overheating the economy and stoking inflation. Investors are also calling for the central bank to be independent and free of political interference.  Analysts say Ankara will also need to repair relations with Washington.

August’s crash in the lira was triggered by the imposition of Turkish sanctions by U.S. President Donald Trump over the detention of American Pastor Andrew Brunson, who is on trial for terrorism charges that Washington claims are politically motivated.

“To stop inflation they [Turkish central bank] will need at least 500 basis points or possibly like Argentina 1,000 basis points interest rate hike,” analyst Yesilada said.

“But is the problem [currency weakness] lack of confidence in running the economy or Father Brunson,” he added.  “If it’s Brunson then raising rates will hurt the economy, but not do much to stabilize the currency.  So maybe it’s better to wait until Mr. Erdogan decides to end this crisis with the United States.”

For now, Erdogan appears to be ready to tough it out, insisting Brunson should stand trial and that lira weakness is part of an international conspiracy against Turkey.

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