Need To Know: May 3

Economic Meltdown In Turkey?

Bad political choices in Turkey are going to force some hard policy choices.

Ankara’s foreign currency reserves are eroding quickly. Just how quickly is being debated.

After analysts at TD Securities estimated the Turks will run out of reserves as early as July, others said net reserves may already be negative.

Turkey’s central bank said last week its net international reserves had dropped to $25.9 billion from over $40 billion at the start of the year.

Actually Recep, they’re going the other way

But some analysts pointed to $25 billion of currency swaps made by the bank, and say they artificially boost reserve figures because they add assets to the balance sheet without corresponding liabilities. In other words, the real number of international reserves is more like $900 million.

Reserves have plunged to stabilize the lira. The currency has fallen 14 percent so far this year, and 40 percent in the last two years.

It dropped because President Recep Erdogan ordered the central bank to keep interest rates low during the last two years ahead of local and national elections. That meant international lenders wouldn’t give Turkey money.

Borrowing is a way to get reserves. But the higher the rate of interest, the higher the repayment and the higher the opportunity cost in roads, schools and hospitals.

If Turkey can’t borrow — or won’t pay the interest rates to borrow — a declining currency makes it more expensive to import goods, but less expensive to export. Over time, that means import and export payments should balance, stabilizing net reserves.

The fact that isn’t even close to happening indicates Turkey has run out of cash to pay for its imports, so a big cut in the standard of living will need to happen. Or it will need to borrow at even higher rates of interest than initially offered to reflect the now higher risk.

Either way, Erdogan faces a reckoning.

China’s EU Threats

China threatened the European Union over attempts to document Beijing’s disinformation tactics during the Covid-19 pandemic, the EU’s chief diplomat admitted on Thursday.

But the E.U.’s top diplomat, Josep Borrell, dismissed media accusations that the EU bowed to China’s threats and altered its report, describing diplomats’ efforts to influence each other to further their own political agenda as commonplace.

It’s alleged references to China running a "global disinformation" campaign and Chinese criticism of France's reaction to the pandemic were erased. They were reportedly changed to, "Official and state-backed sources from various governments, including Russia and — to a lesser extent — China, have continued to widely target conspiracy narratives and disinformation.”

Borrell attempted to explain this by saying there was confusion about two separate reports – a confidential one intended for diplomats, and a second for the public. Suffice to say that’s reassuring neither in terms of information nor transparency.

Borrell was summoned to a special sitting at the European Parliament, which he attended via teleconferencing, after his team was accused of bowing to Chinese threats and watering down a disinformation report.

Borrell also dodged several questions, including one by Reinhard Bütikofer, chair of the parliament’s China delegation, who asked if he would support Swedish and German appeals to China to offer greater transparency into the origin of the virus.

Kim Reappears

This will be the last time we do this story unless there are genuinely important developments …

Kim Jong-un attended the opening ceremony of a fertilizer factory, North Korean state media reported Saturday, his first public appearance after 20 days of absence that sparked wild American media rumors about his health.

Photos released by the Korean Central News Agency showed Kim, dressed in a dark Mao suit, cutting the red ribbon during the ceremony and talking to accompanying officials with a smile on his face. They did not show any signs of an illness.

“It’s good to be alive.”

At least one member of Kim’s entourage could be seen wearing a face mask, amid speculation that COVID-19 is still concern in North Korea. The Seoul-based JoongAng Daily newspaper reported last week that the North Korean leader had been in self-quarantine after one of his bodyguards was confirmed to have contracted the virus.

A green golf cart pictured behind Kim also caught analysts’ attention. It’s similar to one seen when Kim returned from an almost six-week absence in October 2014, walking with a cane and facing speculation that he was battling gout.

We include this detail to show simple explanations are the most likely ones. And it’s foolish to run stories with wild speculation that are not properly sourced.

This once again makes the American media, lead by NBC’s inane Katy Tur who pronounced Kim “brain dead,” look brain dead.