Some developments in Turkey today are worth noting. The central bank left the 1-week repo policy rate steady at 5.75%, as expected. The bank made some optimistic comments on inflation, current account, and loan growth, but none of them were grounded in reality. The fact of the matter stands that inflation is rising, the current account gap is widening, and loan growth is still way too high. Policy needs to be tightened, period. It said it would continue to use the rates corridor to control liquidity, but we do not think that is enough.
Recall that at the October meeting, the central bank hiked the overnight lending rate from 9% to 12.5% and the late liquidity borrowing rate from 12% to 15.5%, thereby adjusting the so-called rates corridor. These hikes were meant to tighten liquidity by raising the cost of borrowing from the central bank, but what’s needed to restore central bank credibility is a more pronounced orthodox tightening in monetary policy. And yet policy-makers are not yet ready to do this.
In related news, Fitch cut the outlook on Turkey’s BB+ rating to stable from positive, citing near-term risks to macroeconomic stability. It noted challenges from the current account and inflation, but affirmed the rating and said it is supported by “favorable” debt dynamics. Our own sovereign ratings model has Turkey moving back to BB+/Ba1/BB+ in the upcoming Q1 2012 report, down from a borderline BBB-/Baa3/BBB- implied credit in Q4 2011. This compares to actual ratings of BB/Ba2/BB+. As Fitch was the highest of the three, this move will disappoint those looking for investment grade. The fundamental story has turned more negative in recent months, and so lack of an adequate policy response by Turkey is coming back to bite them.
We note that during the 2008-2009 EM selloff, TRY was one of the worst at -31% vs. USD vs. worst performers PLN (-43%), HUF (-39%), RUB (-34%), MXN (-33%), BRL (-33%), and KRW (-32%). It is holding up slightly better since September 1 2011, -8% vs.USD vs. worst performers ZAR (-18%), HUF (-17%), PLN (-13%), MXN (-13%), BRL (-13%), and INR (-12%). However, given continued policy mistakes, we think TRY will revert to form and become one of the worst performers again during this current sell off. The October high of 1.9096 will likely be tested and broken. USD/TRY is trading in an upward sloping channel dating back to January, with the top around 1.9756 and the bottom around 1.7683. Right now, TRY is near the center of that channel but given external and domestic developments, we think it trades towards the top rather than the bottom.
The central bank intervened aggressively in September-October to limit TRY weakness, but it does not have a huge war chest like Brazil or Asia. Reserves were $84.4 bln at the end of October, down 10% from a peak of $93 bln in July. Reserves are thus less than short-term debt of around $85 bln, making a protracted intervention defense unworkable. Instead, the central bank should hike interest rates. While it wouldn’t save the lira in this environment, it would be a step towards re-establishing credibility and perhaps help it become an EM market performer instead of an underperformer.
The Abbott Government’s move to change environmental law to stop “third party” court appeals by environmental groups has been described as reckless and an unjustified overreaction by advocacy groups and independent think tank The Australia Institute.
The Abbott Government plans to stop environment groups from challenging large developments following the controversial court decision that stopped Australia's largest coal project – Adani's Carmichael coal mine – from going ahead.
Attorney-General George Brandis is set to repeal a section of Australia's environment law that allows conservationists to challenge environment-based approvals for mining projects and other large developments.
“The Government has decided to protect Australian jobs by removing from the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) the provision that allows radical green activists to engage in vigilante litigation to stop important economic projects,” Senator Brandis said in a statement.
“Section 487 of the EPBC Act provides a red carpet for radical activists who have a political, but not a legal interest, in a development to use aggressive litigation tactics to disrupt and sabotage important projects.
“The activists themselves have declared that that is their objective – to use the courts not for the proper purpose of resolving a dispute between citizens, but for a collateral political purpose of bringing developments to a standstill, and sacrificing the jobs of tens of thousands of Australians in the process.”
Activist group, GetUp has today slammed the Federal Government’s move as reckless and out of step with what the Australian public want.
“Getup members funded the Federal court case against the Carmichael case because this mine is going to wreck the Reef and cook the climate,” GetUp Acting National Director, Paul Oosting said.
“The case was successful because the Minister of the Environment stuffed up. He failed to assess all the information. Now the government wants to change to rules.
they failed spectacularly, these laws play an important role in protecting Australians from mining encroaching on vital farmland and ecologically diverse areas.
“(This) disastrous announcement just proves that the Government has no respect for the law or for the environment and reeks of desperation.”
The Australia Institute said that a review of legal action under the Environment Protection Act by third party appeals to the Federal Court found that the appeals only affected 0.4 per cent of all projects referred under the legislation.
“Proper third party appeals – which have affected 0.4 per cent of projects are being conflated with the serious problem of what has grown to 800,000 unemployed Australians,” Executive Director of The Australia Institute, Ben Oquist said.
“Tony Abbott’s attempt to distract from his economic management failings also risks a federal corruption blow out.”
Oquist said a major review conducted by NSW ICAC reported in 2012 called for strengthening anti-corruption safeguards, including “…ensuring transparency, reducing complexity, meaningful community participation and consultation, and expanding the scope of third party merit appeals.”
He said since the EPBC Act commenced in July 2000 approximately 5500 projects have been through the EPBC process and only 33 have been taken to the Federal Court by third parties.-231354ewedr8reASDFGHJKL;’MNBVCXZ
“The proceedings only related to 22 (or 0.4 per cent) projects referred under the EPBC act,” Oquist said.
“Of the 33 actions, four were discontinued or resolved with the consent of the parties and six were ‘legally successful’, in the sense that the applicant received a judgment and/or orders in its favour.
It’s been reported that Tasmanian-based environmental group Save the Tarkine has described the proposed changes to Federal environment protection laws as "an attack on democracy".
Spokesman Scott Jordan told ABC the Commonwealth's moves to change the EPBC Act was an attack on the principles of democracy and the ability to hold governments to account.
Currently the Federal Parliamentary Standing Committee on the Environment is also holding an inquiry to determine if environmental groups that are eligible for tax deductions are using their donors' funds to bankroll illegal activities and political campaigns.
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