The duke of moral hazard, encore

Prime Minister Recep Tayyip Erdoğan never ceases to amaze me. Just as I was thinking he had set a new standard in damaging the economy by attacking the Central Bank, he raised the bar by announcing a vast debt amnesty.

The new draft law, which was sent to Parliament on June 2, is restructuring a number of debts, from traffic tickets to social security insurance premiums and taxes. Cash taken from businesses by their owners is also included. Erdoğan cronies who were scrambling to come up with millions to buy a newspaper on the PM’s orders will now be able to formalize all the missing cash from their companies. The bribes registered in Reza Zarrab’s excel sheet will be legalized as well.

A government official told Reuters the law “had been prepared by ruling party lawmakers at Erdoğan’s bidding” without consultation with the Ministry of Finance. Along with his row with the Central Bank, this move shows Erdoğan is increasingly leaving Deputy Prime Minister Ali Babacan and Finance Minister Mehmet Şimşek out of the economic decision-making process and relying more and more on his own judgment – and that of his chief economic adviser, Brave Cloud.

A second government official summarized the gist of the new law by noting it was “fulfilling the requirements of the current political environment, not necessarily those of the economy.” As I argued in Monday’s, June 2, column Erdoğan needs growth to make sure he gets elected President in August. That’s why he has been pressuring the Central Bank to cut rates.

He also needs money to boost growth. Public consumption and investment have in fact been contributing significantly to growth since the last quarter of 2012...

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