Until reports came on Thursday night that the US was preparing to impose more sanctions, the Turkish government had had a decent few days. The currency crisis, which threatened to become chaotic on Monday, had improved. The lira had almost returned to its level of a week ago. During that time, the country had increased liquidity in its banking system, unveiled $15bn (£11.8bn) of direct investment from Qatar, announced a clampdown on short-sellers and on Thursday its finance minister, Berat Albayrak, talked the language of fiscal discipline on a phone call with investors. There have been worse fightbacks.
Yet there is a big difference between buying time and turning a corner. Turkey has merely achieved the former. All the main elements of the crisis remain unaddressed. The Qatari money was pledged at impressive speed but the external funding requirement is enormous – about $220bn during the next 12 months, economists estimate.
Meanwhile, a promise of fiscal discipline falls short of being a plan to address many years of overheating in the economy. Outsiders will continue to look for a chunky rise in interest rates, even from the current rate of 17.5%, to address inflation at 15%. And they know that the 35% fall in lira against the US currency since the beginning of July has yet to do its damage on those large Turkish companies that have borrowed in dollars.
Above all, there is the lack of faith in President Recep Tayyip Erdoğan’s ability to manage his way out of the political row with the US over the detention in Turkey of an evangelical pastor, Andrew Brunson. The US is clearly not going to back down, and Erdoğan gave himself almost no room for manoeuvre on Monday when he accused Washington of “firing bullets into the foot of your strategic partner”.
How long can a muddle-through approach last? Per Hammarlund, the chief emerging market strategist at Nordic bank SEB, thinks Turkey may be able to avoid a “full-blown balance of payments and banking crisis” for another three to six months. His bottom line is that “a bumpy road to the IMF” beckons. It is the most likely outcome – still.
Pay ratio disclosure unlikely to curtail excess in UK boardrooms
There’s always the US to put things in perspective. Or, in this case, to demonstrate that excessive executive pay can always become more excessive. Chief executives of the top 350 stockmarket-listed firms in the US took home $18.9m (£14.9m) on average last year, or a lot more than the average £3.9m collected by the bosses of FTSE 100 firms, as we learned this week.
The sums are extraordinary on both sides of the Atlantic but we shouldn’t be surprised that the US figures are larger. Share options tend to be the biggest component of a pay package and US companies can get away with more wheezes than their UK counterparts. Ian Read, the boss of Pfizer, was given an $8m “special equity award” this year, increasing his pay to $27.9m, to persuade him not to retire. Even pusillanimous fund managers in the UK may resist something similar here.
Hold on, you may say, didn’t the US force mandatory disclosure of pay ratios to oblige companies to show how much more the boss was paid than the median earner in the same firm? Wasn’t greater transparency meant to slow the runaway train? Isn’t that why UK, having forced disclosures on the gender pay gap, will also soon be adopting pay ratios?
It’s certainly true that Donald Trump, despite grumbling about the Obama-era reform, never tried to halt it. That is why the average 312-to-one ratio cited by the Economic Policy Institute, which crunched the US numbers, looks statistically solid. The missing part, however, is evidence that transparency produces anything resembling restraint. The mythical firm of Ratchet, Ratchet & Bingo – Warren Buffett’s name for tame compensation consultants who bid up boardroom pay – looks to be alive and well in the US and as shameless as ever.
That thought should worry UK reformers. Pay ratio disclosures were Theresa May’s limp offer after corporate lobbyists bounced out of her idea of putting workers on boards. They will start to arrive in 2020, even though it is already possible to have a stab at the figures from data in current annual reports. Will a formal disclosure make a difference in the UK? Not on the evidence from the US.
