A financial power grab in Turkey?

Exchanges on navigating macro uncertainty. Exchanges on the forces shaping global markets. For the sharpest analysis on finance, business, and the economy. Count on Exchanges, the Goldman Sachs podcast. Listen now. Hi, folks. Mark here. I host another show at the FT called Swamp Notes. It's about U.S. politics, finance, and the economy. And we do this thing where we answer listener questions on our show.

So if you have a question about American politics, shoot me a message and we can get an FT journalist to give you an answer. My email is in the show notes and can't wait to hear from you. Good morning from the Financial Times. Today is Thursday, October 16th, and this is your FT News Briefing. Risky corporate bonds are losing their appeal, and the IMF has a warning for the U.S.

As this enormous debt mountain continues to grow, there's ongoing risks of some sort of major correction in the government bond markets with potential implications around the world. Plus, Turkey's anti-corruption crackdown is hitting businesses, but there are concerns over ulterior motives. I'm Mark Filippino, and here's the news you need to start your day.

Big investors are cutting back their exposure to riskier corporate debt. They're betting that a huge rally over the past few years has made pricing in the credit market overly optimistic. So the worry is that if the global economy starts to wobble, that could lead to a sell-off. Asset managers like BlackRock and Fidelity International are now shifting to safer corporate bonds or...

The International Monetary Fund doled out some advice to the U.S. and the U.K. yesterday. The IMF, as part of its fall meetings, warned the US to get its act together when it came to the deficit. And it encouraged UK Chancellor Rachel Reeves not to scrap one of the country's official economic forecasts. Here to tell us more is the FT's economics editor, Sam Fleming. Hey, Sam. Hi, Mark.

So let's just start with the U.S. because its warning seems to be the more dire of the two. What did the IMF say would happen if the U.S. doesn't reel in the deficit? Yeah, I think there is clearly greater concern about the trends in the US. And those trends are pretty worrying if you look at the...

IMF's new projections, they think the gross debt to GDP ratio of the US, already 125% of GDP this year is going to surpass its previous all-time records to hit 143% by the end of the decade. So there's a sense that... There's just no attempt really on Capitol Hill to begin to address this. And they are concerned that that ultimately will not be good for the US economy, potentially puts up a pressure on interest rates.

Great for the global economy either, because as this enormous debt mountain continues to grow, there's ongoing risks of some sort of major correction in the government bond markets with potential implications. around the world. So we'll get back to the US in just a second, Sam. But first, tell us a little bit more about what the IMF had to say to the UK.

Well, the overall tone of the IMF on the deficit and the debt was fairly supportive because this appears to be going down at least by the end of the current decade. What they're more concerned about is plans by Rachel Reeves, the Chancellor of the Exchequer, to scrap one of the two official forecasts. that the UK has every year from the Office of Budget Responsibility, which is its watchdog. The IMF's a bit worried about that. It thinks that...

You should have two forecasts. That's international best practice. And if you only have one a year, that would damage transparency. So I think this is something that we should definitely watch going forward because the signals coming from Reeves have certainly been that she doesn't like the idea of having...

two forecasts a year when she has this determination to only have one big budget a year. Sam, you're in Washington right now for the fall meetings. What are you looking out for this week and in the coming months when it comes to the IMF? Sure. Among the big questions this week is the question, Mark, about the status of the dollar. Has there been a diminution in the appetite of global investors for the dollar? Is the safe haven?

status of the dollar I don't think anyone thinks that's fundamentally being questioned but certainly could it have been slightly tarnished in recent months. I think the other big question is, early this year, we heard some pretty stark warnings about the impact of high tariffs on the global economy from the IMF. That was one of their big themes.

in the spring, they've slightly upgraded their global forecasts and their US forecasts this week, in part because the fallout from the trade war has not been as severe. for the global economy and US economy. And so I think the question now is, is this greater resilience?

going to persist or is this just a delayed situation where the impact of the trade war will start to drag more on U.S. and global growth going in to next year as well as potentially pushing up U.S. inflation further. So I think that That's a big debate right now. Can this resilience continue? Sam Fleming is the FT's economics editor. Thanks, Sam. Thank you.

China just can't shake its stubborn deflation problem. Official data came out on Wednesday and the numbers were not looking so good. Last month, the producer price index, which measures factory gate prices, declined 2.3% year on year. And the consumer price index fell by a third of a percent in September. It's way less than what economists were expecting. Chinese consumers have been cautious since the end of the pandemic, and it's created seriously low demand that

not even government intervention can boost. Combine that with the rocky trade relationship with Washington, and things are not looking up for the Chinese economy. The one silver lining is that core CPI, which strips out food and energy, rose 1% last month.

President Recep Tayyip Erdogan's government has already interfered in Turkey's political institutions. Now people are worried it's going after the country's commercial sector too. The business community in Turkey has been shaken by an anti-corruption drive that has swept up hundreds of companies. Their assets have been transferred to a government-controlled fund that is worth billions of dollars.

I'm joined by the FT's Turkey correspondent, John Paul Rathbone. Hi, John Paul. Hi, Mark. So, JP, how did this anti-corruption drive begin? It's something that's been building momentum since March and just park that March date for a moment because it's important. But last month, it took an unexpected turn when this large holding company called Jan Holding was whisked under a government probe. And what made it odd is that the owner of that business was deemed to be close to the government.

And one of the aspects of the Jan Holding probe was that it contained one of the country's last independent broadcasters, which is now under state trusteeship. And then a week afterwards, another group, Chinna Group, which was generally regarded as a good corporate citizen, was also apprehended. And people started to think, what is going on and why is it happening? Yeah, why is it happening? Do we have a sense?

There's a multitude of theories, but the two simplest of them are as follows. The first is the government is just trying to purge corruption from the economy. The backdrop to that is that in March, and remember that date that we just parked to one side, the main opposition leader... Ikram Imamoglu, the mayor of Istanbul, was arrested on corruption charges. Dozens of other officials from his party have also been arrested on corruption charges.

The application of justice, government critics say, has been somewhat selective. So the theory is that this anti-corruption drive, as well as purging corruption from the economy, is also... designed to show that the government is not singling out the opposition that is after corruption as a whole. And what's the second theory?

The second theory is slightly more noxious. The government in the past has used the state fund as a warehouse into which it places seized businesses, which are seized for... legitimate reasons, and then parcels them out to allies. And as the economy is struggling, it needs to have funds and resources to boost through its own patronage networks.

So a company which is deemed to be corrupt is parked in the state fund. The owner of the business subsequently goes to trial and is either cleared or not. If the owner is found guilty, then the business is confiscated and then they're sold on and liquidated for the good of the economy. Of course, nothing is mutually exclusive and there could be another explanation, but those are the two most current at the moment.

JP, what does this all mean for Turkey's economy and does it create this chilling effect in the business community?

So Turkey's economy is about two and a half years into a macroeconomic reform program that was designed to bring back the economy from the brink of hyperinflation and balance of payments crisis. And in some senses it's been successful. Inflation is now only, in inverted commas, 33 odd percent but interest rates are punishingly high businesses are really suffering from the high financing costs so things are in a real squeeze

And this is how potentially this anti-corruption drive fits in, because how do you support your patronage networks if you've got no money? So, JP, what's next? Are we expecting this anti-corruption crackdown to continue? What is the next step for... President Erdogan's government. Erdogan is widely thought to want to extend his term in power. He's also lagging in the polls. And so the best way to ensure that he wins is to remove the opposition. And that is what...

government critics allege, is happening to the opposition party. And it's being removed on corruption charges, which is why this backdrop of an anti-corruption drive is so significant. Because if the government can demonstrate to the average... What we're doing against the opposition is just part of a broader corruption drive. And it makes a more credible case that the ruling party is just bashing down on corruption and it's not persecuting the opposition. And hey, you should vote for me.

So that is the overall backdrop. It's extremely complicated and calibrated, but Erdogan has a proven track record. He's been in power for over two decades of finding a way forward through apparently impossible odds. John Paul Rathbone is the FT's Turkey correspondent. Thanks, John Paul. Thank you. Before we go, I just want to say thank you. Because of your votes, the Briefing One signals listener choice award for best daily podcast. Seriously, big thanks for your support. You are all the best.

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