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By Karin Strohecker
LONDON, May 16 (IFR) – "Shock and Unbelief" – This is how global money managers responded to an attempt by Turkish President Tayyip Erdogan to assure foreign investors about his economic management when the lira started to spin.
Fund managers who met Erdogan and his delegation on Monday during a three-day visit to the UK were amazed at how he wants to tame rising inflation and a free-fall currency while seeking lower interest rates.
Some said Erdoğan had crushed his inner enemies, but he would hit the international financial markets harder with a policy that defies economic orthodoxy.
A resurgent dollar, rising oil prices and a rise in borrowing costs have created chaos in emerging markets in recent weeks. However, Turkey was hardest hit as it had a persistent current account deficit and increasingly wondered who exactly held the reins of monetary policy.
Erdogan's comments that he wanted better control over the economy following the prompt presidential and parliamentary elections next month deepened investor concerns about the central bank's ability to fight inflation and helped liaise on the lira Bring Tuesday to a record low.
Turkey has been experiencing rapid inflation for decades before 2000 and has been in double digits since the beginning of 201
On the condition of anonymity due to the political sensitivity of the meetings, investors told Reuters that they were stunned by his attitude and willingness to enter world markets at such a fragile time. FINDING ENEMIES It noted Erdogan's long list of enemies, including US-based Islamic preacher Fethullah Gülen, whom he accuses of orchestrating a failed coup in 2016.
"He chooses struggles with all … he fights against the opposition, he fights Gülen, he fights against the extremists, he fights for the failed coup – now he fights against the markets, and that is dangerous," said a fund manager of a large wealth management company,
"You can find your secret enemies All you want, but if you try to conquer a financial market, that's a fight you can not really win," said the manager, whose Company attended a meeting with Deputy Prime Minister Mehmet Simsek.
Another portfolio manager who attended a meeting with Erdogan said the president had been "very honest" and clarified where he would expect interest rates if he won the June 24 election.
"Erdogan .. said if he (will be re-elected) president, he will make sure that the rates will be low, not high," said the portfolio manager. "His opinion is that high interest rates lead to high inflation, I am not sure if I agree with this view."
Once a darling of emerging-market investors, Turkey has lost ground dramatically in recent years and concerns about Erdogan's overly large impact on monetary and fiscal policies.
Weakened five years in a row, the lira has rallied 15 percent against the dollar since the start of the year, making it one of the worst performing emerging market currencies.
"He thinks the market is a bunch of speculators, and that's not his audience, his audiences are ordinary people in Turkey and they need lower interest rates," said a third-party asset manager whose company also attended the Erdogan meeting. (Reporting by Karin Strohecker, additional coverage by Marc Jones)