Quit it cold, Turkey: policy tightens at last

Hello and welcome to The Intelligence on Economist Radio. I'm your host, Jason Palmer. Every weekday, we provide a fresh perspective on the events shaping your world. There's more than mere humanitarian values behind China's drive to end extreme poverty this year. Our correspondent visits its beneficiaries finding that it boosts urbanization, builds the workforce, and breeds a useful gratitude to the Communist Party. And somehow, through the intricacies of internet culture, a stoner frog called Pepe has become a symbol of white nationalism. We examine a new film that documents how the cartoon spread and how its creator has tried and failed to reclaim it. But first, today, Turkey's central bank, led by its new governor, said it would raise the country's target interest rate by 4.75%, the biggest rate rise in 2 years. It's a welcome shift in policy. That's because over those past 2 years, even as inflation soared and the Turkish lira sank, the central bank kept rates low. That led foreigners to dump Turkish stocks, destroyed the savings of millions of Turks and put the lira on a perilous path to a currency crash. Recently, though, the lira is enjoying a big rebound. The stock market is soaring, and officials have changed their tune about the need to keep inflation in check. That shift in Turkey's economic fortunes happened before today's move, and it started with a family argument.

On November 7th, President Recep Tayyip Erdoğan abruptly ousted his central bank governor without much in the way of an explanation and replaced him with Naci Akbal, who had once been a finance minister.

Piotr Zelewski is our Turkey correspondent.

But Mr. Akbal was also one of the main rivals of the serving finance minister, Berat Albayrak, who also happened to be President Erdoğan's son-in-law. And was once seen as his possible successor. And so Mr. Al Bayrak, who was not consulted on the decision to replace the central bank governor, indignantly stepped down the following day. But chaos in the Erdoğan family was also something of a relief for the lira. The lira responded with its best performance in almost 2 decades.

[Speaker:GHION.AI] So wait, why is it that the resignation of the finance minister would cause that kind of rally in the currency?

Well, I think Mr. Al-Bayrak represented all that was wrong with the management of the economy. Over the past 2 years, he, with his father-in-law's blessing, nearly ran the economy into the ground. Banks were forced to hand out credit, often at rates below inflation, to revive sagging growth. The lira sank by over 40% in just 2 years on Mr. Al-Bayrak's watch. Which obviously burned a hole in the savings and earnings of millions of Turks. Inflation remained in double digits for all but 2 months during Mr. Al-Bayrak's tenure. And the central bank was not allowed to hike rates, and so resorted to the next best thing, which was to burn through over $100 billion in precious foreign currency reserves to salvage the currency. And obviously it failed. The currency this year alone has lost about a third of its value against the dollar.

And so it would seem, at least to investors anyway, that the new choices at the top are comparatively good ones.

Yes, the new central bank governor, Mr. Arbal, and the new finance minister, Lütfiyevan, are both Erdogan loyalists, but they are also capable technocrats. But really it's less who they are that matters than the message they and Mr. Erdoğan have been sending and the general change in tone in Ankara. For the time being, both the central bank governor and the finance minister are making all the right noises about stabilizing the currency, bringing back investors, and bringing inflation down to single digits. And even Mr. Erdoğan, and this is the key part because he is really in charge of both monetary and fiscal policy in Turkey, even he, a sworn enemy of high interest rates, interest rates, now says that Turkey might have to swallow what he calls a bitter pill, meaning a dose of austerity.

And so what is it that drove Mr. Erdoğan at last to overhaul his economic team?

It was the realization that current policies were unsustainable. In a way, Mr. Erdoğan had to surrender to market pressure. If he had not changed course, there could have been a full-blown currency crash. The other alternative would have been to seek help from the International Monetary Fund, but that's something that Mr. Erdoğan has previously ruled out for political reasons. And there would have been political consequences to pay as well. A group of 30, perhaps 40 MPs from Mr. Erdoğan's ruling Justice and Development Party had reportedly threatened to defect to the opposition unless Mr. Albayrak was given the boot. And the US elections, to some extent, may have played a part as well.

How so? How does that figure into the calculus here?

Over the past 4 years, Mr. Erdoğan could always count on Donald Trump to look away in the face of Turkey's internal crackdowns, plus its aggressive foreign policy, for example, in Syria, Libya, the Mediterranean, the Caucasus. Mr. Trump also shielded Turkey from sanctions over its controversial purchase of the S-400 S-400 air defense system from Russia. Under Joe Biden, who has referred to Mr. Erdoğan as an autocrat who needs to pay a price, things are very likely to change. The US will draw and enforce its red lines much more thoroughly, and Mr. Erdoğan will have much less room to cut deals with the White House. Sanctions over the S-400 will be much harder to sidestep, especially after Turkey tested the system in October. So there's a feeling in Ankara that Turkey might have to get its house in order, both politically and economically, to prepare for or to avoid sanctions, or at least to minimize tensions with the US. And there's some reason to believe that the overhaul of the economic team was intended as a first step.

And what further steps do you foresee? Do you think Mr. Erdoğan will get his house in order, as you say, both politically and economically?

The fact that Mr. Erdoğan is talking about monetary orthodoxy and some kind of a return to rule of law is obviously a welcome sign. But for all the talk about reform of the justice system, about democratic reforms, he is not about to loosen his grip on the institutions. He's not about to give up on growth or to stop tormenting opponents. I think even if he were sincere about some democratic changes, his alliance with Turkey's ultranationalists, both in and outside parliament, could prevent him from taking any concrete steps toward democratic reforms, such as peace talks with Kurdish separatists, and improving relations with Western partners. And when it comes to the economy, whether the central bank makes the correct call still depends less on on who is in charge of the bank than on whether Mr. Erdoğan gets up on the right side of the bed. It was Mr. Erdoğan who forced the bank to keep rates low, and it's also Mr. Erdoğan who will have given the bank the green light to increase them. So the changes at the top matter to some extent, but what matters most is what Mr. Erdoğan thinks.

Piotr, thank you very much for your time. Thank you. If, like me, you just can't get enough of central banking, check out Money Talks, our sister show on business and economics. This week, it takes a look at President Donald Trump's parting, controversial nomination of Judy Shelton to the Federal Reserve and what it could mean for the American economy. Look for Money Talks wherever fine podcasts are sold and traded. China's Communist Party has many ambitions, among them the ending of poverty in the country. The drive to keep that pledge is not just about transforming lives. It also presents an opportunity to transform thoughts.

This is one of the biggest political promises that the Communist Party have made in recent years, which is that extreme poverty will be completely eliminated. By the end of this year.

David Rennie is our Beijing bureau chief.

And they have spent several years moving people off mountaintops, moving people from poor villages into apartment buildings. And there are about 5 million Chinese left to cross the line, which is set at about $600 a year.

And how exactly are they doing that, getting people out of poverty?

Well, a lot of the last kind of 100 million or so Very poor Chinese live in the remotest bits of the countryside. They live in villages right up on the tops of mountains. Most of them are from ethnic minorities. They've lived kind of subsistence agricultural lives. The basic story is really one of urbanisation for a lot of them. So people have been told that their village is being relocated down to the valley floor, or down to a kind of new public housing complex on the edge of a county town. I was on a government tour, I should say, that was completely controlled. We had no ability to ask people independently what they thought. And we were shown villages where old people had been moved from kind of old hovels into new homes. So a typical interview that we were sort of set up to have was with a villager called Xie Jiamin, who did tell us that he didn't like his old house in this mountain village. [CHINESE] There was no way for cooking smoke to escape from the one room. [CHINESE] The air was really bad inside. He now has this little concrete house with a picture of Xi Jinping on the wall. He's a pensioner, so he's basically out of the workforce. You get a very small pension as a villager. Most of the young adults have left these villages, gone to do migrant labor in bigger cities. Near the coast. So it's old people and small children. And the idea is that they're going to be raised in nursery schools where they're taught Mandarin, they're taught to sort of join the labour force, basically. The truth is that this is about getting people into the national workforce and fitting them to be migrant labour and making them suitably grateful for what the party has given them.

But do you get the sense that people like Mr. Xie are actually grateful?

There's a tremendous emphasis on encouraging people to be grateful. I mean, there's posters everywhere telling people to be thankful to Xi Jinping. One of the places we were taken is called Gang An Chu, which means gratitude community. And there was this constant sort of drumbeat. Every little concrete-walled apartment that we went into, the metal furniture was stamped with the Communist Party name, saying it was a gift from the party. And certainly the senior officials that we got to meet on this government kind of propaganda tour, told us openly that changing people's thinking and encouraging them to be grateful is a vital part of poverty alleviation work. And there's a justifiable intention behind it, but very often it kind of reminds you of listening to kind of colonial officials 100 years ago. There's a kind of colonial feel to it.

But in describing this very staged, managed scene and this sort of enforced gratitude and so on, it does make you wonder why is the party doing this at presumably great expense?

It is an investment in trying to move China up to the next level of an advanced economy. China is very worried about getting stuck in what economists call the middle income trap, where you never become a rich country, you just get stuck with a bunch of middle income jobs. They need to get more people into the productive bits of the workforce. So the idea is that a lot of this is about getting farmers off very, very small patches of land, handing that land over to an agricultural cooperative so they can all be clumped together into a much larger commercial farm, and then giving those people migrant jobs in factories. One of the things that's really interesting is that the way that China rose from poverty so dramatically after the Mao years began with farmers being allowed to choose what they wanted to grow for themselves, and the government just getting out of the way. This is now in Xi Jinping's China, it's technocratic officials basically thinking that they can plan this more efficiently and scientifically, and that they do know best. And so, These counties are often being organized in a very top-down way that this county will grow apples, that county will grow walnuts, and that will make these people rich.

So I'm just wondering why the government needs a propaganda tour for you to see all this. And if it is all propaganda, then why go?

The reason to go on these propaganda tours is that you get access to the senior officials that are in charge of these programs. It's also the case that as a foreign journalist, if you went into these minority villages, the police would pick you up and throw you out. Very, very quickly. So the downside is it's stage managed. The upside is you get to stick around and ask questions of officials. You don't get to have an honest conversation with any villagers. There's a kind of patronising bossy streak to the propaganda sort of industry here. There was a really uncomfortable moment in a village which is supposedly Tibetan— actually they're Aarsu, but they're just called Tibetan— and these women who worked in the village clinic as nurses were dressed in their ethnic costumes to greet us. And the state Chinese media journalists kind of went straight up to these women and said, "Oh, you're ethnic minorities, you love to sing and dance, sing a little song for us." And the women sort of said, "Well, we haven't prepared anything." They're like, "No, you are ethnic minorities and you like to sing and dance." And so they did start singing this rather beautiful song, but it was very much kind of forced on them.

So it's hard to form a view here. This is in fact people being lifted out of poverty, and even though it is bossy, it does seem like it is doing some people some good.

It's one of the big challenges with covering China. It's a very bossy, very organized Communist Party-led country, but it has lifted hundreds of millions of people out of poverty, often, it should be said, by letting them get themselves out of poverty by working unbelievably hard. But you shouldn't romanticize what came before. They are ending genuine misery. And some of the mountaintop villages that these people were forced out of were very bleak places, very harsh places to live, where particularly women and children lived incredibly bleak lives and were kind of illiterate and had no rights at all. So poverty alleviation is a gigantic project. It is a very impressive thing. But like everything the Communist Party does, their measure of success is also whether it increases their power and their control over an orderly, grateful society.

David, thank you very much for joining us.

Thank you. I love Trump, Trump loves me. Build a wall, Space Force can see. With a Big tech's cut and soaring economy triggered leftists to kill me.

Pepe the Frog is a cartoon character who's gone from a carefree slacker to a symbol of the alt-right over the last 15 years.

Sanjana Varghese writes about culture for The Economist. She's been looking at how Pepe the Frog memes, such as what you just heard, have been used to spread extremism online.

A new documentary that came out a couple of weeks ago called Feels Good Man explores how he's become a symbol of white nationalism. In particular, it follows the cartoonist who created him's attempts to reclaim him, take him back from these kind of malevolent forces.

And for those who haven't seen him in the dark corners of the internet, give us a description. Who is this Pepe?

He's a frog with these particular features. He's got like a big grin, kind of anthropomorphic, and he's just kind of relaxed. He's really carefree. Pepe the Frog was created by Matt Furie. He's an American cartoonist as part of Boys Club, which is a comic strip that he created after he finished university based on his friends from college and the kind of post-university stoner, carefree phase. The image of him that's the most well-known comes from this comic strip where he drops his trousers all the way down to go to the toilet, and when he's asked why, he said, "Feels good, man." And that's the title of the documentary. That's kind of his catchphrase. That's the thing that spread.

And you say he went from a sort of carefree stoner type to a symbol of the alt-right. How did that happen?

Matt Furie, the creator, uploaded images of the comic onto MySpace, very early social media network, really exciting at the time. And that image just somehow really curiously spread. So it kind of went on to bodybuilding forums, and that phrase "Feels Good Man" started to pop up in these unexpected ways. This white nationalist corner of the internet particularly seized on Pepe. The image brought on to 4chan, which is an image board, and a lot of people who were on 4chan, particularly a lot of young men and people who spent a lot of time on the internet, didn't really like that he was starting to become popular popular outside of their corner of the internet, their subculture. And so they started to create these offensive parodies of him, kind of to tar his image, not to reclaim him, but really to like assert their hold over him. Not just through putting funny captions in with him or putting offensive comments around pictures that they post of him, but also actively using Pepe and photoshopping him or modifying him to make him actively offensive. So for example, putting Pepe in a KKK hood, putting him with a Hitler mustache, these things that are supposedly ironic and supposed to be a joke, but really serve as a kind of message to other people with the same views or with similar views that Pepe is for you. And he becomes this entry point to radicalization. He becomes this gateway meme into more offensive imagery or more offensive ideologies. Even though people maybe would see Donald Trump retweeting a photo of Pepe the Frog and think, well, you know, it's a frog. For people who are in the know, particularly people on those white nationalist forums, it kind of is an idea of, he knows what I'm saying and he's there too.

And what did Pepe's creator think of that transition from harmless stoner type to symbol of the alt-right?

Matt Furie, once he realized how Pepe had kind of been corrupted or turned into this symbol, got involved with the Anti-Defamation League. They initially labeled Pepe a hate symbol, and he basically wanted to reclaim it. So he ran a campaign with them trying to reclaim Pepe as a symbol of love. So getting people to send in these new drawings of Pepe with peace signs and with hippie hair, fun and sweet, a kind of counterbalance to these weird drawings that people were doing. It didn't really seem to work. It seemed like it was almost too little, too late. Fury's intervention and the intervention of people kind of on his side didn't really seem to be working.

And so what's the future of the image then, now that it seems to be lost to the dark corners of the internet?

There's a couple of different ways that some people are still hopeful about the future of Pepe the Frog. It's kind of seen as sweet and innocent and a symbol of hope. The documentary actually goes into a lot of detail about how Pepe became this symbol of resistance for people in Hong Kong. He became this countercultural figure wearing a construction hat, but he is still very much associated with the alt-right, particularly online. I think particularly within the US and the UK, fans have redrawn this version of Pepe to change his features so that he's not got this buggy look but this smug look. He's smiling, he looks a little bit evil, to be honest. So there's two different ways that it's going, and I think it's really unclear about which version of Pepe will win out.

Sanjana, thank you very much for your time.

Thanks very much for having me on.

That's all for this episode of The Intelligence. If you like us, give us a rating on Apple Podcasts, and you can subscribe to The Economist at economist.com/intelligenceoffer. The link is in the show notes. See you back here tomorrow.