Highlights of the week: An opportunity for democracy in Turkey and Thailand, the threat of default in the US and Pakistan, Zuckerberg's enrichment, and Musk's downturn
A review of the major events of the past seven days and the international press's reaction to them
Mind continues its series of publications entitled "Highlights of the Week". It highlights the main events that recently have shaken the global community and have a significant impact on the economies of not only individual countries but also entire regions. This issue of our news roundup is dedicated to the electoral marathon in Turkey and Thailand, financial fluctuations in the US, the UK, and Pakistan, as well as the behaviour of global energy markets, the state of international aviation, and the wealth of tech giants' owners.
Course towards democracy: Opposition gains ground in Turkey and Thailand
The attention of the global media was focused on Turkey last week, where presidential and parliamentary elections took place on Sunday, May 14th. For the first time, the powerful Turkish opposition rallied around Kemal Kılıçdaroğlu, a former official from the Ministry of Finance and head of the state pension agency, in an effort to challenge Erdoğan.
Apart from the clash between two ideologies – Erdoğan's drift towards authoritarianism and pragmatic cooperation with russia, versus the pro-European development proposed by the opposition – these elections also highlight the battle between two economic paths.
Erdoğan's main challenge, and thus the hope of the opposition, lies in the rampant inflation of over 40%, which has plunged millions of Turks into poverty. Inflation, which reached 86% annually last fall, is being implemented artificially slowing the depreciation of the lira through the Central Bank's controlled sale of credit dollars. Turkey's credit portfolio has reached nearly $70 billion, a worrisome situation for the population.
On the other hand, the opposition proposes to 'treat' inflation through economic orthodoxy. Kemal Kılıçdaroğlu plans to restore the independence of the central bank, which will inevitably lead to a sharp increase in interest rates. There is also an expectation of Western investments in the country, which boasts the largest economy between India and Germany and benefits from The EU Customs Union. Institutional reforms are also favoured to attract investments, such as restoring the role of parliament and the position of prime minister, which Erdoğan abolished, consolidating power in his own hands, and restoring the independence of the judiciary and mayors, as well as fighting corruption among officials.
However, support for Erdoğan is not based on realities alone. Firstly, it is fuelled by memories of how he came to power at the peak of an inflationary spiral and a banking crisis, in fact, saving the country from an economic downturn. Moreover, during the first part of his presidency, the economy experienced stable growth.
Secondly, many Turks are inspired by his rhetoric of Turkey's greatness, which distracts from the actual economic problems and focuses on specific achievements. Just in the past month, he ceremoniously inaugurated the country's first nuclear power plant (built with russian funds), celebrated the discovery of a major gas field in the Black Sea, drove the first Turkish electric car, and unveiled the country's first aircraft carrier.
This rhetoric is reinforced by accusations of the opposition in collaboration with the US and the West in general, reminiscent of kremlin propagandists. Therefore, Western media, in their predictions regarding the elections, stated that the struggle would be difficult but not impossible for the opposition, at least in the second round of elections scheduled for May 28th.
An almost similar situation unfolded with the elections in Thailand, which also took place on May 14th. The opposition, enjoying significant support, promises to restore democratic policies in place of the military authoritarianism that has prevailed for decades. However, the constitution rewritten in 2017 provides no grounds for expecting significant changes even after the opposition's victory, as the military retains the authority to determine the country's prime minister through the upper house of the Senate of Thailand.
Two worlds – two defaults. However, it seems that the United States and Britain have changed their inflation trend
Last week, in expert circles, there was also a discussion of the arrest of former Pakistani Prime Minister Imran Khan on corruption charges, which sparked nationwide protests, leading to restrictions and blocking of social media platforms Twitter, Facebook, and YouTube. Against the backdrop of the economic and political crisis in the country, analysts see the situation as threatening. Moreover, negotiations with the IMF are currently underway, which could prevent the predicted default in the summer.
But the threat of their own default has become the central topic for American media. On May 9, congressional leaders gathered with President Biden in the Oval Office to begin discussions on the Treasury's inability to make payments on sovereign bonds or fulfil spending obligations.
By June 1, when the Treasury runs out of cash, they must reach an agreement on how to deal with the debt ceiling – a mechanism that severely limits government borrowing. They must either raise or cancel it. "For investors who think there is no chance of Washington careening over the precipice, it is time to snap up t-bills at a discount and sell pointless bond insurance to the nervous. Since the Treasury would have run down its cash reserves to virtually nothing, a deal would be followed by a glut of issuance to rebuild the buffer. Even the best-case scenario would drain liquidity from the market and may push yields higher," The Economist writes.
The New York Times reminds us that in his recent annual letter to Berkshire Hathaway shareholders, Warren Buffett expressed optimism about the financial future of the United States. However, the outlet is more concerned about the internal political stability of the United States rather than the financial aspect: "Bizarrely, the United States has the ability to pay its debts but may not do so because of an inability to achieve a political consensus."
Overall, this situation reminds the commentator from The Hills, Mike Lillis, of the events of 2011 when a Democratic president clashed with Republicans in a months-long struggle that brought the country to the brink of default and led to the first-ever credit rating downgrade in U.S. history. This time, however, it could be worse, he warns. The country has become more polarised, the parties have become more inflexible, and some Republicans, including former President Trump, have stated that they are willing to allow a default to achieve their goals.
However, other financial indicators in the United States are quite optimistic: April marked the 10th consecutive month of slowing price growth. The consumer price index rose by 4.9%, while economists surveyed by Bloomberg predicted a 5% increase. Core inflation, which excludes volatile food and fuel prices, also declined slightly. The Federal Reserve's interest rate hikes have helped slow down consumer price growth after its peak in June.
Markets are betting that the Fed will soon halt rate hikes, although the job market is still heating up – employers created 253,000 jobs last month, significantly surpassing forecasts.
The situation in the United Kingdom is worse: the Bank of England raised its base interest rate for the 12th consecutive time, bringing it to 4.5% – the highest level since 2008. The country's annual inflation remains consistently high at 10.1%, significantly exceeding inflation in the United States and the EU. The Bank stated that further rate hikes are possible if inflationary pressure persists. Against this backdrop, conservatives have openly criticised Prime Minister Rishi Sunak.
Cautious energy optimism. The russian 'snake' has been neutralised, but sanctions still aren't effective
However, there is cautious optimism in the energy markets. The price of natural gas in Europe has fallen to its lowest level since July 2021. Alternatives to russian energy sources and a mild winter have contributed to the decline in gas prices at the Dutch TTF hub (day-ahead contract) to just over 35 euros per megawatt-hour. In August of last year, the price reached a peak of over 300 euros per MWh as russia reduced its supplies. It led to additional taxation of russian oil producers to cover russia's budget gap caused by the gas shortfall. However, oil prices of all grades are also experiencing a decline, with the russian Urals falling more intensively than others.
Moreover, the ring around russia is slowly but steadily tightening. The U.S. Department of Justice announced last week that it had dismantled a digital espionage network that was controlled by putin's russia for nearly 20 years. Specifically, the special russian spy unit called Turla, which, according to U.S. officials, operated the malicious software called Snake.
This system was designed to seize and transmit confidential documents and related files from hundreds of computers in at least 50 countries, including the United States. In response, the FBI has developed its own software called Perseus, which will force the "malicious software Snake to rewrite its vital commands" and erase them from infected computers in the United States.
On the other hand, the German newspaper Bild expressed outrage that russia is evading sanctions by importing German products through its satellites. "Exports to Kazakhstan, Armenia, and Georgia have doubled since the beginning of the war. There has been an increase of about 150% to Tajikistan and 77% to Belarus, while exports to Kyrgyzstan have increased by 994%," the outlet states. This statistics has raised concerns among the country's ministries of economy and foreign affairs. According to Bild, David O'Sullivan, an Irish diplomat appointed to enforce EU sanctions against russia, is scheduled to visit Germany.
The world is witnessing the resumption of international travel. Quarterly profits of Air France-KLM and International Airline Group, the owner of British Airways, indicate increased demand. There is also increased demand in the discount segment of the aviation industry. Ryanair, the largest European airline, has ordered 150 Boeing 737 Max aircraft with an option to purchase an additional 150. Michael O'Leary, the boss of Ryanair, who had criticised Boeing last year for aircraft delays, describing its management as "headless chickens," compared the relationship between the two companies to a marriage this week: "We have rows, but then we kiss and make up," as quoted by The Economist.
Forbes reports that Elon Musk is experiencing losses as Tesla's stock falls, while Mark Zuckerberg, on the contrary, has gained $10 billion following Meta's earnings report. "Zuckerberg now holds an $85.1 billion fortune, about 140% higher than it was last fall as Meta shares hovered at a seven-year low, but his net worth is still far below its 2021 peak of $136.4 billion," the outlet notes. On the other hand, Tesla's problems were exacerbated by the forced announcement on Friday of the recall of over 1 million vehicles from the Chinese market, where acceleration and braking system issues were discovered. It is not the first time. In March, the company announced the recall of 3,470 of its electric vehicles after weakened bolts were found. And in February, the company recalled over 362,000 vehicles due to experimental self-driving software that raised safety concerns.
And of course, the media week concluded with the Eurovision Song Contest, which took place in Liverpool on Saturday. So it is quite relevant to quote The Guardian: "Queen’s Roger Taylor joined last year’s UK entrant, Sam Ryder, on stage for a drum solo for Mountain, whose lyrics are partly inspired by the struggle of the Ukrainian people. In the end it wasn’t a new song that brought Liverpool Arena to tears: it was a moving rendition of You’ll Never Walk Alone, the 1945 show tune that has become a terrace anthem in one half of this city, and felt like the perfect ode to Ukraine." In this and many other articles about the show, Ukraine is mentioned more frequently than the winner of the final, Sweden.
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