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Crises of Authoritarian Financialization: Monetary Policy in Hungary
and Türkiye in the Polycrisis
David Karas & Pınar E. Dönmez
This is an Accepted Manuscript of a book chapter published by Routledge in M. Yağcı (Ed.).
Central Banking in a Post-Pandemic World: Challenges, Opportunities, and Dilemmas (1st ed.).
on 25 August 2023, available online: https://www.routledge.com/Central-Banking-in-a-Post-
Pandemic-World-Challenges-Opportunities-and/Yagci/p/book/9781032346700
Chapter Abstract (250 words)
We identify in this chapter the contradictory objectives of monetary policy under an authoritarian mode
of financialization (AF) in Emerging Market Economies (EMEs) where the executive branch intervenes
directly in monetary policy, banking supervision and retail banking. We interpret AF as a statist-
authoritarian attempt to manage the vulnerabilities of growth strategies under subordinate
financialization: following Marxist theories of the state, we argue that instead of providing political-
economic stabilization, statist authoritarianism merely internalizes class conflicts within the state
apparatus spurring accumulation and legitimation dilemmas for the state. We illustrate two divergent
crisis trajectories of AF in Hungary and Türkiye in the 2020-22 period by showing how executive
centralization fails to solve the increasingly contradictory objectives of stabilizing sovereign and private
debt markets. Instead, we observe enhanced incoherence in monetary policy and a diminishing capacity
of AF regimes to shore up rentier social contracts. Although both cases face accumulation and
legitimation dilemmas in 2022, we explain the consolidation of inflationary and disinflationary
monetary policies with differences in debt profiles, social blocs, and external financing conditions.
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Introduction
Emerging market economies (EMEs) were prominent casualties in the 2020-2022 polycrisis: the
COVID-19 shock birthed a “liquidity tsunami” in 2020-21 before morphing into a liquidity crisis in
2022 as the Federal Reserve tightened monetary policy after Russia’s invasion of Ukraine. Inflation and
capital flight destabilized currencies and political orders in EMEs: many tackled financial instability by
ramping up political interventions beyond orthodox monetary policy via price controls for instance
(Pyrkalo, 2022). Some EMEs however entered the 2020-2022 cycle with already politicized monetary
regimes, where the visible hand of the state had presided over the social allocation of money.
In this chapter, we examine the impacts of the 2020-2022 period on central banking and monetary policy
under authoritarian financialization (AF) in EMEs: We focus on Hungary and Türkiye, both of which
pursued debt-based growth strategies under authoritarian regimes where the executive branch had
expanded control over monetary policy, financial supervision, and retail banking before 2020. We
distinguish between defensive and offensive forms of financial statecraft in EMEs to explain the
conflicting rationales for centralized political control over money: the former seeking to enhance the
state’s relative financial autonomy under structural subordination in global currency hierarchies,
whereas the latter aims to harness credit-based growth as a tool of political pacification and
governmentality.
We interpret authoritarian financialization as a state capitalist fix to finance-based growth strategies in
EMEs under structural financial subordination. Following critical Marxist state theories (Offe, 1974,
Poulantzas, 2014), we argue that instead of delivering financial stability, easing monetary policy
transmission, and improving credit conditions, the expansion of centralized executive control over
monetary policy and finance internalized political and class conflicts within the state apparatus. These
tensions were actualized in Hungary and Türkiye in 2022 as political conflicts between the Central Bank
and the executive, torn between the objectives of price stability and fiscal solvency on the one hand,
and the financialization of the private sector favored by incumbents on the other. When global credit
conditions contracted, expanded political control over the social allocation of money precipitated a dual
crisis of accumulation and legitimation, pointing to the limits of authoritarian financialization as a
strategy of political and economic stabilization.
Whereas the two countries entered the 2020 COVID-19 period with similar strategies to boost a finance-
real estate nexus with low interest rates as a strategy of growth and political cooptation, their policies
diverged under the global liquidity squeeze of 2022: When it became impossible to simultaneously
manage sovereign and private debt, Hungary prioritized the former and Türkiye the latter. We explain
this divergence with differences in debt profiles, social blocs, and external financing conditions.
Literature Review
While multiple operationalizations of financialization in EMEs exist (Karwowski, 2020), we focus here
on credit-based growth strategies which target households and non-financial corporations (NFCs).
Credit-based accumulation was long treated as an autonomous ideal type, but recent contributions
highlighted its key role in both export-led and domestic demand-led growth regimes (Ban and
Helgadóttir, 2022), especially in EMEs confronted with the developmental bottlenecks of industrial
upgrading (Bonizzi et al., 2022). The state of the art on the relationship between financialization and
the state in EMEs is both underdeveloped and contentious (Lapavitsas and Soydan, 2022).
The first generation of a literature on subordinate financialization often reified the view of EME states
disempowered by financialization: finance-based growth was described as limiting the sovereignty of
EME states occupying a subordinate position in the global currency hierarchy by constraining their
monetary policy space and enhancing financial risk for public and private actors alike (Bonizzi et al.,
2020, Kaltenbrunner and Painceira, 2018, Alami et al., 2022). Financialization was furthermore viewed
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as an externally driven process, which reproduced asymmetries between Core reserve currency
economies and a Periphery submitted to external agency.
Both arguments were nuanced as it became apparent that instead of merely eroding statecraft, exposure
to global liquidity- and exchange rate volatility actually forced the “uneven emergence of specific forms
of state power in emerging markets in relation to the operations of capitalist finance” (Alami, 2020).
A literature on the Financialization of Housing (FoH) additionally showed that instead of passive rule-
takers, EME policymakers played a key role in recycling globally mobile capital by channelling it into
domestic real estate sectors in pursuit of growth and political stability (Cordeiro Santos, 2022,
Rodrigues et al., 2016, Feng et al., 2021, Garcia and Martinez Lopez, 2021, Ergüven, 2020, Pósfai and
Nagy, 2017, Yeşilbağ, 2020, Gagyi and Mikuš, 2022, Fernandez and Aalbers, 2020).
The view of sovereignty-limiting and externally driven financialization was most problematic for a
subset of EMEs such as Hungary and Türkiye where centralized political control over monetary policy
and finance dramatically increased after the Global Financial Crisis (GFC): re-politicized Central Banks
were only the most visible part of this process (Dönmez and Zemandl, 2019, Yağcı, 2018, Sebők, 2018).
One interpretation saw statist interventions as countermovements (Scheiring, 2021) seeking to contain
the most destabilizing features of financialization via financial repression and de-financialization
(Carney, 2015, Gabor, 2010, Ban and Bohle, 2020). This didn’t explain however why credit-driven
asset price bubbles boomed in the late 2010s in parallel to an expansion of political control over money
in the very same countries. A large literature on statist-neoliberal hybridity debated whether
authoritarian statism was meant to sustain neoliberal forms of accumulation (Ban, Scheiring, & Vasile,
2021; Bruff, 2016; Callison & Manfredi, 2020; Tansel, 2017), or if it was neoliberalism which was
repurposed to sustain authoritarian-statist political projects (Fabry, 2019, p. 137).
Rather than viewing statist-authoritarian political interventions in monetary policy and credit conditions
as eradicating financialization or reproducing it, we analyze them instead as precarious attempts at
fulfilling contradictory political and economic objectives. Politically, they use centralized state control
over credit as a mode of authoritarian governmentality to stabilize rentier social contracts
(Bedirhanoğlu, 2020, Karas, 2021, Büdenbender and Lagna, 2020, Mattioli, 2020, Apaydin and Çoban,
2022b). Economically, they play a comparable role to shadow banking in advanced economies (AEs);
Braun and Gabor described how shadow banking in AEs emerged to solve the three problems of
financing sovereign debt, enhancing monetary policy transmission and fuelling asset prices as a strategy
of growth (Braun and Gabor, 2020). In financially subordinate EMEs without reserve currencies and
without deep financial markets, centralized political control over monetary policy and retail banking
played a functionally similar role by forcing banks to simultaneously hoard the sovereign and boost
lending. Unlike in reserve currency economies however, a trade-off always existed between the
sustainability of sovereign and private debt: this tension was only masked by the long global liquidity
glut which tapered in 2022.
Theoretical Framework
AF is an authoritarian mode of EME financialization where the executive directly shapes monetary and
macro-financial policy by imposing interest rates (Yağcı, 2018), and macroprudential regulations
(Piroska, Gorelkina, & Johnson, 2020) to re-politicized Central Banks (Dönmez and Zemandl, 2019),
as well as using moral suasion (IMF, 2022a), or outright nationalizing retail banks (Voszka, 2018)
compelled to lend both to the public and private sectors. Under AF, the executive develops a “financial
vertical” which uses formal and informal instruments to control the entire circuit of money (Mishura
and Ageeva, 2020, Karas, 2021).
We observe two rationales for the consolidation of AF: centralized executive control over monetary
policy and banking might be pursued to enhance the state’s relative financial autonomy from global
capital markets and improve monetary policy transmission (Ban and Bohle, 2020, Ban et al., 2021).
Conversely, it may also be an instrument to financially starve political opposition forces and engineer
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asset price bubbles as a basis for rentier social contracts (Karas, 2021) between an authoritarian regime
and households or factions of capital dependent on credit provisioning by the domestic banking sector
(Apaydin and Çoban, 2022b).
We adapt the concepts of Defensive Financial Statecraft (DFS) and Offensive Financial Statecraft
(OFS) to distinguish these objectives (Armijo and Katada, 2014): DFS targets sovereign debt and
foreign capital inflows to contain the risks of exposure to exchange rate and global liquidity volatility
while enhancing government control over monetary policy transmission. OFS interventions force
lending by financial intermediaries to NFCs and households (Khmelnitskaya, 2014, Karas, 2021,
Büdenbender and Lagna, 2020, Yeşilbağ, 2020, Mishura and Ageeva, 2020) (Table 1).
Table 1. Defensive and Offensive Financial Statecraft
Objectives
Policy Instruments
Defensive
Financial
Statecraft
a. Reduce exposure to
global capital markets
b. Build buffers against
future financial shocks
c. Control monetary
transmission
1. Deleverage debt
2. Reduce FX % of sovereign and private
debt
3. Reduce non-resident % of sovereign bonds
4. FX Reserve accumulation
5. Re-politicize Central Banks
6. Nationalizations in banking
7. Macroprudential regulations
8. Capital controls
9. Moral suasion & subsidized retail bonds
Offensive
Financial
Statecraft
a. Enhance
financialization as a
growth strategy
b. Enhance
Ffnancialization to
sustain rentier social
contracts
1. Low interest rates
2. Subsidized credit to NFCs, SMEs and
households
3. Macroprudential Interventions
4. Asset purchase programs of corporate
equities and bonds
5. Public guarantees in PPP & blended
finance investments
Crisis Tendencies of Authoritarian Financialization
AF illustrates Marxist theories of the state which expect statist attempts at solving accumulation
bottlenecks to produce new crises (Alami and Dixon, 2021; Bedirhanoglu, 2021; Bonefeld, 2014: 2, 91,
157-8; Borchert and Lessenich, 2016: 6; Burnham, 1994; Clarke, 1991; Holloway and Picciotto, 1991;
Offe, 1974: 47-49). Transposing the arguments of Poulantzas and Offe to subordinate financialization,
we argue that by making the executive the central authority over the social allocation of money, AF
internalizes the tension between DFS and OFS objectives within the state, and makes it vulnerable to
distributive conflicts between diverse groups (Poulantzas, 2014). Executive centralization spurs
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accumulation and legitimation dilemmas for the state (Offe, 1974) when DFS and OFS objectives
become incompatible. These contradictions manifest as intra-elite conflicts between the Central Bank
and the executive, a degradation of monetary policy transmission, and a trade-off between sovereign
debt and domestic lending which pose contradictory but interlinked demands on monetary policy, as
the former is a key collateral for the latter (Eichacker, forthcomming, Gabor, 2010).
Case Selection
After converging on similar AF models, monetary policy in Türkiye and Hungary diverged during the
2022 polycrisis, illustrating different crisis trajectories. In both countries, financial liberalization in the
1990s resulted in systemic political-economic crises (in 2001 and 2008 respectively). Post-crisis
stabilization was undertaken in both countries by nationalist hegemonic parties (AKP and Fidesz) which
fused neoliberal and statist elements (Ban et al., 2021): deleveraging combined with FX reserve
accumulation and a reliance on banks and households to finance public debt improved financing
conditions for the state as interest rates followed a secular decline after AKP’s 2001 reforms and Fidesz
reforms after 2010 (Figure 1).
<Insert Figure 1 here >
Figure 1 Long-Term Interest Rates
Source: Federal Reserve Economic Data (FRED)
In parallel, real estate bubbles sustained with cheap credit stabilized rentier social contracts between
authoritarian governments, crony capital groups in construction and real estate, as well as middle-class
homeowners who benefited from inflating housing prices (Adaman et al., 2014, Yeşilbağ, 2020, Karas,
2021, Güngen, forthcomming) (Figure 2).
<Insert Figure 2 here >
Figure 2. Real Estate Bubbles
Source: Federal Reserve Economic Data (FRED)
This second wave of financialization was accompanied by an expansion of executive control over
monetary policy, banking authorities, and retail banks which forced banks to simultaneously finance
sovereign debt and deepen the financialization of housing.
The Crises of Authoritarian Financialization in Hungary and Türkiye
The global liquidity glut created by Core central banks in 2020-21 convinced Hungary and Türkiye to
deepen OFS interventions and boost credit-based growth. During the 2022 liquidity squeeze however,
the limits of AF as a strategy of political and economic stabilization became apparent: both countries
faced a dual crisis of accumulation and legitimation albeit their monetary policies diverged. Türkiye
prioritized private debt and embraced an increasingly coercive cycle of OFS and DFS interventions: It
maintained record negative real interest rates even amidst inflation above 180% (Thomas, 2022) to
shore up an alliance between AKP and firms in export-oriented industries and construction. The cost
was a rapid deterioration of public finances, the proletarianization of households and the dollarization
of 54.4% of deposits (Bloomberg, 2022), which in turn compelled the government to impose capital
controls and appropriate private FX deposits to contain the pressure on the exchange rate. Hungary by
contrast retreated from both OFS and DFS objectives to safeguard the exchange rate and stabilize
sovereign bond markets: the Central Bank raised interest rates from 0.6% to 18%, while phasing out
subsidized credit instruments for households and corporates. A disinflationary interest coalition
prevailed between the state’s need to stabilize financing for the sovereign on one hand, and the interests
of non-tradable domestic capital factions and households hurt by inflation on the other. We explain this
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divergence in monetary policies with differences in debt profiles, social blocs, and external financing
conditions.
Debt Profiles
After their respective crises in 2001 and 2008, both AKP and Fidesz deleveraged public debt and relied
on domestic banks and households to finance government debt (Figure 3).
<Insert Figure 3 here >
Figure 3. Sovereign Debt
Source: (IMF, 2022c)
However, debt stabilized at a high level in Hungary at 78% of GDP in 2022 compared with Türkiye’s
42%: public debt, fiscal deficits and social transfers (Table 2) remained important for pacifying post-
Socialist masses excluded from the labor market (Bohle and Greskovits, 2012). Türkiye deleveraged
more radically: under IMF-approved fiscal reforms, government debt to GDP declined from 75.5% in
2001 to 42% in 2022 (Figure 3).
Table 2. Debt Profiles
Hungary
Türkiye
Government Debt to GDP
77% (2022)
42% (2022)
Fiscal Deficit to GDP
-6.8% (2021)
-3.51% (2021)
Social Protection Benefits to
GDP
18% (2020)
12.8% (2020)
Share of Sovereign Bonds in
Bank Assets
21% (2020)
14% (2020)
Sources: European Bank Federation, Eurostat (gov_10dd_edpt1), Eurostat (spr_exp_gdp), (IMF,
2022c)
After the GFC, Hungary attempted to ringfence sovereign debt from global capital markets: under the
Central Bank’s guidance, bank reserves were channelled into sovereign bonds whose overall share in
total bank assets doubled from 10% to 21%, even as they halved in Türkiye from 28% to 14% (IMF,
2022a). The combination of high levels of public debt and a deep sovereign-bank nexus backfired in
2022 when inflation and depreciation hit EMEs: In Hungary, fiscal and monetary consolidation
appeared necessary to improve both the state’s fiscal solvency but also the portfolio of a nationalized
banking sector deeply exposed to the sovereign (Boitan and Marchewka-Bartkowiak, 2021, Deghi et
al., 2022, Buljan et al., 2020).
The Composition of Rentier Social Contracts
Periodic capital outflows after 2013 questioned the sustainability of credit-led growth in Türkiye:
financialization failed to sustain a broad social bloc and became skewed towards corporates. The share
of households in total bank credit to the private sector declined from 33% to 23% between 2012 and
2020 while that of NFCs rose from 46% to 53% (Apaydin and Çoban, 2022a). Conversely, in Hungary
the co-optation of middle classes via subsidized credit accelerated: the share of household debt in private
sector debt doubled from 17.9% to 41.6% between 2010 and 2021 (MNB, 2022d). Whereas Turkish
export-oriented SMEs were a core constituency for AKP (Akcay and Jungmann, 2022, Apaydin and
Çoban, 2022a, Buğra and Savaşkan, 2014), Hungarian domestic capital reliant on state-controlled
finance were concentrated in import-intensive and non-tradable sectors, while foreign multinationals
dominated export sectors (Vakhal, 2020). By 2022, a disinflationary interest coalition prevailed in
Hungary between incumbents, non-tradable domestic capital factions, and households hurt by inflation.
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In Türkiye, a narrow coalition between incumbents, export-oriented SMEs, and the construction sector
maintained loose monetary policy against misgivings by the Central Bank and households facing
proletarianization.
External financial conditions
The 2022 global liquidity squeeze accelerated a politicization of transnational capital mobility
(Cassetta, 2022, Vaughn, 2019), which affected Hungary and Türkiye differently: Hungary entered a
stalemate with the EU Commission over systemic corruption which blocked access to 7.5 billion euros
in EU funds. The role of EU transfers in sustaining AF in Hungary by augmenting FX reserves and
subsidizing the real estate and construction bubbles (KPMG, 2017) was revealed as blocked transfers
put unprecedented pressure on the exchange rate and the sovereign but also depressed the construction
sector which was earmarked to receive 61.25% (Government_of_Hungary, 2021). Türkiye also faced
capital flight, yet FX reserves nominally increased thanks to swap agreements with China, Korea, Qatar
and Saudi Arabia alongside an inflow of $28 billion “net errors and omissions” attributed to Russian
capital seeking to evade US sanctions (Ashworth, 2022): politicized foreign capital inflows convinced
the Turkish presidency that augmented FX reserves could patch up current account deficits and stabilize
the lira without monetary tightening (Sonmez, 2022).
Part I. The Consolidation of Authoritarian Financialization
Hungary
During Hungary’s first era of financialization before the GFC, public and private debt served political
pacification: deficits and sovereign debt ballooned as social transfers were used to pacify masses
excluded from a deindustrializing post-Socialist job market mired in unemployment (Bohle and
Greskovits, 2012, Scheiring and Szombati, 2020). FX household debt was a pressure valve (Bohle,
2013, Bohle, 2017) in a wage-repressing, export-oriented growth model with high interest rates (Nölke
and Vliegenhart, 2009, Gabor, 2010). In 2008, depreciation (Buchholtz, 2020) pushed FX-indebted
households to default. The debt crisis unravelled a Socialist-Liberal coalition, and Fidesz won a two-
thirds majority in 2010 by promising deleveraging without austerity. The consolidation of AF under
Fidesz can be broken down into two periods (Figure 4): between 2010 and 2015, DFS interventions
prioritized the state’s relative financial autonomy. After 2015, OFS interventions engineered a real
estate bubble which stabilized a rentier social contract.
<Insert Figure 4 here >
Figure 4. Post-GFC Deleveraging
Source: World Bank [FS.AST.PRVT.GD.ZS]
After 2010, DFS interventions followed three objectives: deleveraging to improve the state’s external
financing conditions, domesticating sovereign and household debt by converting FX to forint
instruments and enhancing government control over monetary transmission.
Deleveraging was constitutionalized as a budgetary principle in Article 36 of the 2011 Fundamental
Law: Between 2009 and 2017, gross external debt was reduced from 150% of GDP to 84.6% (IMF,
2018). Fiscal restraint reassured the EU Commission and ECOFIN which lifted an Excessive Deficit
Procedure in 2013 (Ministry_of_National_Economy, 2013): in turn credit rating agencies and foreign
investors rallied, easing spreads on credit default swaps (Government_of_Hungary, 2012, Benczúr and
Kónya, 2015, Johnson and Barnes, 2015).
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The domestication of private debt for FX-indebted households was achieved with a swap scheme
between 2011 and 2015 (Beckmann, 2017): The Central Bank (MNB) provided 9.1 billion euros for
banks to close their Swiss franc positions (Kolozsi et al., 2015). To domesticate sovereign debt, MNB
created a market for local currency bonds by setting a quantitative limit on bank reserves accepted into
the three-month deposit policy rate instrument: thus forcing excess reserves into HUF-denominated
bonds (Nagy and Kolozsi, 2017, András and Motyovszki, 2016). As fiscal consolidation improved
external financing conditions, MNB reduced the base rate from 7% to 0.9% between 2012 and 2016,
terminating the pre-GFC sterilization games (Matolcsy and Palotai, 2018). Between 2011 and 2019, the
share of non-resident bondholders decreased from 40% to under 25% and FX debt dropped from 48%
to 18% (IMF, 2019): foreign bondholders were marginalized as tax-free, subsidized bonds restricted to
households financed public debt with domestic savings (Figure 5). The state gained in financial
autonomy while middle-class bondholders became a rentier class.
<Insert Figure 5 here >
Figure 5. Self-Financing
Source: Eurostat [GOV_10DD_GGD]
Executive control over monetary transmission targeted the Central Bank and foreign retail banks. In
2013, Orbán nominated his Minister of Economy György Matolcsy as Governor of the Central Bank,
cementing government control over monetary policy and launching MNB’s mission creep (Sebők,
2018, Dönmez and Zemandl, 2019): MNB incorporated the Financial Supervision Authority in 2013
and acquired the Budapest Stock Exchange in 2015. It also steered the renationalization of retail
banking. After the GFC, foreign banks, which had controlled 80% of Hungarian banking assets, were
gradually nationalized. The largest transfer saw MNB become the direct owner of Hungary’s fifth
largest bank MKB bought from Bayern LB in 2014: MNB cleaned the NPL portfolio of MKB before
reprivatizing it to Fidesz-aligned oligarchs (Sebők, 2018). By 2017, 50.5% of banking was domestically
owned, two-thirds directly by the state (EBF, 2018).
After 2015, an export-competitiveness crisis emerged: current account surpluses began to melt (Figure
6), wages and inflation rose and domestic suppliers to MNC-controlled export sectors lobbied for
deregulating labor rights to maintain their profitability (Karas, 2021). The executive responded by
restricting labor rights and using its new monetary-financial arsenal to revive lending (Figure 7).
<Insert Figure 6 here >
Figure 6. Hungary's Export Competitiveness Crisis
Source: World Bank [BN.CAB.XOKA.GD.ZS]
<Insert Figure 7 here >
Figure 7. Negative Correlation in Lending and Exports
Source: (MNB, 2022a, MNB, 2022c)
MNB launched the Funding for Growth Program in 2013, offering banks interest-free refinancing for
SME lending with a capped premium at 2.5%: by 2016, 40 000 SMEs had benefitted from the scheme
(Matolcsy and Palotai, 2018). This was followed with the Market-based Lending Scheme (MLS) in
2016, which offered preferential interest rate swaps (LIRS) to retail banks conditional on increasing
SME lending (MNB, 2018). MNB also launched a Family Housing Allowance (CSOK) program in
subsidized credit which accounted for 16% of total loan issuance and 57% of residential loans between
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2016 and 2018 (Banai et al., 2018). A natalist “prenatal baby support loan” scheme followed in 2019,
offering subsidized housing credit for couples promising to deliver future births: this scheme accounted
for 17% of household lending by 2021 (MNB, 2022d). MNB’s subsidized lending instruments
combined with low base rates fuelled corporate and household lending, and an inflation in real estate
prices (see Figure 8).
<Insert Figure 8 here >
Figure 8. The finance-real estate nexus
Source: (KSH, 2022, MNB, 2022d)
This second, authoritarian mode of financialization reduced sovereign debt, the share of FX debt, the
role of foreign bondholders and foreign banks. Contrary to previous EME templates, it fuelled credit-
based growth with low interest rates (Gabor, 2010). It also reconciled an authoritarian executive
governing society through finance with the material interests of private actors: household savings
financed government debt against subsidized yields, improving the state’s relative financial autonomy.
NFCs and middle-classes enjoyed subsidized credit and assetization via a state-engineered real estate
bubble benefitting homeowners and construction firms.
Türkiye (2001-2018)
Following a wave of financial crises, AKP’s 2001 IMF-endorsed restructuring program laid the ground
for OFS strategies which consolidated a finance-led ‘jobless’ growth trajectory (Orhangazi and Yeldan,
2021: 462, 467-8, 481-3) as well as a governing strategy to co-opt and discipline subordinated classes,
and fuel dispossession and proletarianization (Bahce and Kose, 2016: 8; Bryan et. al., 2009: 461, 470;
Karacimen, 2015: 763).
Prior to the GFC, this process was led by bank lending, household debt, and unprecedented issuance of
credit cards (Aslan and Dincer, 2018: 147, 149; Karacimen, 2016: 253). After the GFC, the QE
programs of Core reserve currency Central Banks provided an uninterrupted supply of capital inflows
while contributing to the long-term real appreciation of the lira – which was as high as 70% between
2001 and 2008 (Orhangazi and Yeldan, 2021: 472). Similar to Hungary before the GFC, the relative
appreciation of the lira eased external borrowing conditions in the corporate sector, reduced its reliance
on domestic borrowing and banks, and expanded its activities in consumer lending- a trend which was
reversed in the post-GFC context (Erol, 2019: 729; Yeldan and Unuvar, 2016: 22, 26). The overall
impact on the industrial circuit of capital was import-dependency given the low value-added, assembly
line character of industrial production, rising current account deficits, de-industrialisation and declining
contribution of industrial production to employment (Orhangazi and Yeldan, 2021: 481; Yeldan and
Unuvar, 2016: 20-22).
What became distinctive after the GFC was a more direct, government-led expansion of OFS: policies
such as domestic credit provision to SMEs, the construction sector and households, attempts to re-
politicise central banking as well as politicized public procurement consolidated the nexus of finance,
real estate and construction. The construction sector appeared viable to generate employment, growth,
and attract foreign direct investment without endangering the IMF stabilisation programme. It
experienced unprecedented growth rates between 2010 and 2014 (Erol and Unal, 2015: 18, 23-4, see
also Demiralp et. al., 2016; Yesilbag, 2021: 7-8). Gradually, the pattern of export-led accumulation
following trade liberalisation in the early 1980s based on lira depreciation shifted towards debt- and
construction-led growth during the 2000s.
This period was marked by internal disputes between economic policymakers (cabinet ministers as well
as the central bank) and deepening intra-class struggles within the power bloc, namely between the
internationalised capital groups, which could finance themselves on global markets and favoured
10
stricter monetary policy, and export-oriented SMEs which relied on cheap domestic credit (Akcay,
2020; Donmez and Zemandl, 2019; Yağcı, 2018).
The pre-GFC real estate-finance nexus in Türkiye was sustained by the post-2001 macroeconomic
recovery, the creation of the housing credit market, the growth of mortgage lending following a 2007
legislation
i
(Aslan and Dincer, 2018: 148-9) and the Mass Housing Administration (TOKI) placed under
the office of Prime Ministry after 2003 (Erol, 2019: 728, Tansel, 2019; Yesilbag, 2021). Further
‘government-led reregulation’ from 2010 to 2014 included urban legislative reform, large scale urban
regeneration and infrastructure projects promoting financialisation and housing demand (Erol, 2019:
725, 730, 732). These policies actively reshaped state-capital hybridity (Alami and Dixon, 2021) in the
housing and construction sector by creating urban rents and commodification, consolidating
financialisation as a strategy to discipline and manufacture consent, while also deepening the
indebtedness of non-financial corporations (NFCs) (CBRT, Annual Report 2017: 17-8, 20; 2018: 20-
22;) (Figure 2). In March 2022, the combined share of corporate and SME loans within total bank
lending was 81% compared to 67% in 2012 whereas the share of consumer loans and credit cards
represented only 19% of total loans compared to 33% in 2012 (BRSA, 2019; 2022). The distribution of
bank loans to the construction sector also increased dynamically after 2013 (BRSA, Monthly Banking
Sector Data, n.d.).
Private capitals blended with the state as construction-sector capital groups engaged in infrastructural
“mega-projects” which relied on state support via public-private partnerships (PPPs) and politicized
public procurement. TOKI enhanced the financialization of housing by a threefold increase in PPP
construction between 2003 and 2013 (Demiralp et. al., 2016; Sonmez, 2014 cited in Bozkurt, 2021: 14;
Bugra and Savaskan, 2012; Marschall et. al., 2016; Arslanalp, 2018). However, this trajectory was
repeatedly destabilized by global liquidity shocks following policy shifts by reserve currency central
banks: the Fed’s 2013 taper tantrum spurred new waves of capital outflows and volatility in 2013-14
and 2015-16 (Akcay and Gungen, 2019; Bozkurt, 2021: 26). After a third phase of capital flight in 2018,
CBRT responded with DFS interventions: These included an amendment to CBRT law authorising the
Bank to obtain any data required to monitor the foreign exchange transactions of real persons and legal
entities, regulations to allow export rediscount credit borrowers to make payments in lira equivalent,
facilitation of domestic currency based trading through a swap agreement with China, and the
centralisation of bank collateral management under CBRT (CBRT Annual Report 2017: xii, 26, 28;
Annual Report 2018: 23). These interventions deepened CBRT’s involvement in the management and
supervision of corporate finances and currency risk. Interest rate hikes led to debt servicing problems
and bankruptcies by domestic firms concentrated largely in the construction sector (Erol, 2019: 738).
This dynamic turned the currency crisis into a more systemic debt crisis while also making CBRT more
complicit and constrained (Akcay and Gungen, 2019). By the end of 2018, the official inflation rate
almost doubled within a year and settled at 20.30% (CBRT Annual Report, 2018: 20; Figure 9).
<Insert Figure 9 here >
Figure 9. Inflation in Türkiye
Source: (CBRT, n.d.)
CBRT tackled these challenges after 2018 by enhancing OFS interventions to stabilize credit
provisioning for NFCs and continuous policy rate cuts in the second half of 2019 (CBRT Annual Report,
2018: xii, 23-5). It also utilised reserve requirement ratios (RRRs) to keep monetary expansion in
check: A crucial regulation introduced in December aimed to channel the loans to ‘production-oriented
sectors rather than consumption-oriented ones’ with the aim of encouraging ‘long-term commercial
loans that had a strong relation with production and investment, and long-term housing loans that had
a weak relation with imports’ (CBRT Annual Report, 2019: xii).
11
Part II. Deepening Authoritarian Financialisation Under COVID19 (2020-21)
Hungary
Green lending and asset purchase programs (APP) launched before the pandemic to deepen financial
markets via securitization were reframed under COVID19 as countercyclical policies (MNB, 2019).
MNB emulated the low interest rates, APPs, and green lending of Core economies: Instead of
convergence with AE templates however, the semi-peripheral features of authoritarian financialization
were reinforced. An apparent deepening of financial markets masked a recapitalization of state-
dependent crony capital groups tied to the finance-real estate nexus, the concentration of banking assets
under state control and the shoring up of the rentier social contract via the financialization of housing.
MNB’s monetary policy toolkit to tackle COVID19 contained limited DFS interventions to contain the
risk of balooning public and private debt: a loan repayment moratorium was announced for the private
sector, and an Asset Purchase Program (APP), under which MNB purchased government securities with
long maturities to help finance public debt. By contrast, OFS interventions involved multiple
instruments such as low rates, greenwashing the financialization of housing, new subsidized
instruments, macroprudential regulations to boost lending and an APP to recapitalize domestic capital
groups.
MNB kept base rates under 1% until May 2021 and expanded its mission creep by rebranding itself as
a green central bank, mimicking the EIB’s transformation into a climate bank (Mazzucato and Penna,
2016, Griffith-Jones and Carreras, 2021). The green mandate empowered MNB to use macroprudential
interventions to incentivize “green” retail lending and create new asset classes such as green mortgage-
backed bonds.
A Mortgage Funding Adequacy Ratio (MFAR) for green-certified mortgage-backed funds would be
weighted at a preferential rate. A “Green Preferential Capital Requirement Program” for retail banks
reclassified household loans for energy efficient housing as less risky and conceded lower capital
requirements to retail banks. MNB also launched a new Green Home Program in October 2021, offering
0% refinancing for banks to lend at a capped 2.5% to households for the purchase or refurbishing of
energy-efficient flats. To support the uptake of green instruments, a Green Mortgage Bond Purchase
scheme to buy forint-denominated, fixed-rate “green” mortgage-backed bonds to the tune of HUF 200
billion was announced in 2021 (MNB, 2021a). In continuity with preferential loans to SMEs since 2013,
MNB launched the FGS GO! Program under which it provided 0% refinancing loans for banks to lend
at capped interest rates to SMEs: between April 2020 and September 2021, 40 655 firms benefited from
this subsidized scheme (MNB, 2021b). To support the largest domestic firms, MNB launched in July
2019 an Asset Purchase Program called “Bond Funding for Growth Scheme” with a HUF 300 billion
window to purchase bonds issued by NFCs, modelled after the ECB’s Corporate Sector Purchase
Programme (CSPP) and the 2016 BoE Corporate Bond Purchase Scheme (CBPS) (MNB, 2019). By
2022, over 30% of retail credit was subsidized, while MNB acknowledged the pacifying role of state-
driven financialization noting that “buying a new home without subsidies would currently represent an
excessive financial burden for families in Budapest” (MNB, 2022a). MNB acknowledged that it had
created a housing bubble overvalued by at least 18% compared with fundamentals (MNB, 2022a).
The APP spurred one of the largest Central Bank balance sheet expansions in EMEs: between 2020 and
2021, MNB assets grew from 7% to 20% GDP. While MNB purchased up to 5% of government debt,
Hungarian QE also involved massive purchases of collateralized bonds issued by NFCs, making it an
outlier among EMEs which primarily used APPs to stabilize sovereign bond markets instead of
recapitalizing domestic firms (Arena et al., 2021). The APP strengthened the finance-real estate nexus:
35% of the large firms benefitting from the APP were involved in construction and real estate (Figure
10) just as most subsidized SME loans were channelled to the sector (Figure 11).
<Insert Figure 10 here >
12
Figure 10. The APP and the finance-real estate nexus
Source: own calculations based on MNB and press (see appendix)
<Insert Figure 11 here >
Figure 11. Sectoral Composition of SME Loans
Source: (MNB, 2022d)
The APP also circumvented EU state aid rules which had limited MNB’s ability to capitalize crony
firms: 50 out of 90 large firms benefitting from the APP were connected to the Prime Minister’s inner
circle. Multiple recapitalized crony capital groups expanded their foreign corporate and residential real
estate portfolios during COVID19 (Kassay, 2022, Kuzmanovic, 2022, HVG, 2020, Mester, 2020).
Finally, the APP also created a hitherto inexistent private bond market: Between 2018 and 2022, the
corporate bond market grew from 1.5% to 5% of GDP. However, these asset-backed bonds didn’t trade
on the secondary market and failed to kickstart a broader expansion of securitization (Szekeres, 2021):
banks only purchased bonds issued by NFCs because of preferential yields on corresponding deposit
accounts stored at the Central Bank. Overall, neither green lending nor the APP delivered the sought-
after deep capital markets, but they were effective in shoring up the rentier social contract supported by
the finance-real estate nexus.
Türkiye
The transition to the Presidential System of Government (PSG) in 2018 accelerated authoritarian
financialisation in Türkiye. The centralization and personification of power represented an authoritarian
fix to address global liquidity shocks in 2015-16 and the deepening legitimacy crisis of the AKP regime
after 2013 (Akcay, 2018; Akcay, 2020; Araj and Savran, 2021). However, the politicization of
economic management dramatically heightened conflicts over monetary policy between the Presidency
and CBRT. While this tension had been present since 2001, the shift to PSG after 2018 empowered the
Erdogan regime with stronger coercive capabilities to directly dismiss central bank governors and
policymakers (Akcay, 2020; Bedirhanoglu, 2021a).
Throughout 2020, CBRT relied on loose monetary policy and macroprudential incentives for lending
to weather the pandemic related economic distress (CBRT Annual Report, 2020: xii-xiii, 25, 35). The
Bank also initiated an asset purchase programme (APP) accompanying its policy rate cuts from March
2020 to July 2020 (more modest than in Hungary) to offset capital outflows (Arena et. al., 2021: 6, 12;
Table 2). These policy choices preserved the OFS objective of pursuing financialisation as a growth
strategy while introducing graver inflationary and political risks for the post-GFC power bloc.
Table 3. Macroeconomic fundamentals
Macroeconomic fundamentals
Turkey
Hungary
General government debt (2020)
Low (<50% of GDP)
High (>70% of GDP)
General government fiscal deficit
(2019)
High (>5% of GDP)
Low (<5% of GDP)
Local currency government debt
(2019)
Low (<20% of GDP)
High (>50% of GDP)
Size of domestic government
securities markets
Small
Large
State ownership of the banking
sector (2016)
High (>30%)
Low (<30) (increased after
2016)
13
Inflation rate and expectations
High
Low
Pre-pandemic current account
balance (2017-19)
Deficit –(funding through
portfolio flows)
Surplus
Foreign reserves (2020)
Below the IMF’s reserve
adequacy metric (<80%)
Above the IMF’s reserve
adequacy metric (>100%)
Post-Covid APPs
Duration
Mar-Jul 2020
May 2020- Dec 2021
Asset type
Government securities
Government securities,
mortgage, and corporate
bonds
Amount
1.6% of GDP (2020)
7.2% of GDP (by end-June
2021)
Compiled from Arena et. al. (2021: 29-33, 56, 59)
A consequence of incentivizing credit was the sharp rise in domestic demand-driven imports (CBRT
Annual Report, 2020: 20; CBRT Financial Stability Report, 2021: 1). This, in turn, increased the
indebtedness ratio of the corporate sector from 56% in January 2020 to 69% in August while the
previously declining household financial leverage ratio flattened at 36% during the pandemic (CBRT
Annual Report, 2020: 36). These dynamics, alongside excessive FX reserves loss (over USD 100 billion
in the course of 20 months) brought the economy to the verge of crisis once again (CBRT FSR, 2021:
2; Figure 12).
<Insert Figure 12 here >
Figure 12. NFC Debt Service
Source: (BIS, n.d.)
Consequently, CBRT moved to stem credit by increasing its policy rates between September 2020 and
2021 (Figure 13) and the Covid-era OFS instruments were gradually rolled back after November 2020.
The earlier onset of monetary contraction was an element of divergence between Türkiye and other
emerging economies and worsened due to the pre-pandemic vulnerabilities of the economy (CBRT
Annual Report, 2020: 20).
In response to CBRT’s stubborn pursuit of price stability, the President resorted to frequent dismissals
of several central bank governors and policymakers in 2020 and 2021 (Al Jazeera, 2021; Guardian,
2020; Michaelson, 2021). A similar battlefield formed between the Turkish Statistical Institute and the
executive with respect to the announced official inflation rate which led to the dismissal of the head of
the Institute by the President in early 2022 (Pitel, 2022).
The contractionary monetary response of CBRT was countered by the expansionary pressures on credit
growth and deepening financialization led by several OFS practices of the executive: the inclusion of
new debt instruments as eligible collateral for repo and reverse-repo transactions of banks and
intermediary institutions in December 2020 and February 2021, an extension of credit support packages
to SMEs, micro and small enterprises (MSEs) in the manufacturing and technology sectors as well as
long-term loan support for targeted manufacturing investments in specific regions, financial support
programmes for income loss and rent. Additionally, a presidential decree issued in December 2020
introduced significant interest discounts to loans that were extended by one of the main public banks
(Halkbank) and the Ministry of Treasury and Finance was tasked with covering the income losses
arising from the extension of these loans. In February 2021, the Ministry of Environment and
Urbanisation extended credit interest support for urban transformation and construction (CBRT FSR,
2021: 6, 8).
14
CBRT also started reporting on green finance and bond developments, and their impact on financial
stability more substantially from 2021 onwards (CBRT FSR, 2021: 14). Sustainable and green bond
issuance by the Turkish banking sector commenced in 2016, and while it is not as developed as in the
advanced capitalist economies and in Hungary (World Bank, 2022: 21), the post-Covid era
demonstrated a visible upsurge in this regard. CBRT reports that green/sustainable bond issuance has
reached a total of USD 2.7 billion in Türkiye since 2016. However, USD 1.75 billion of this total amount
has been issued since August 2020 (CBRT FSR, 2021: 17). The degree of attention paid to green finance
is discernible in the announcement of the Monetary Policy Committee’s decision to ‘support sustainable
finance initiatives as a long-term policy without prejudice to the main objectives of monetary policy’
in October 2021 (CBRT Press Release, 2021; Inflation Report, 2021: 10; CBRT FSR, 2021a: 6).
Part 3. Crises of Authoritarian Financialization (2021-2022)
Hungary
After the GFC, Fidesz proposed two justifications for executive control over monetary policy and credit:
the first was to deleverage and domesticate debt, which enhanced the state’s relative financial autonomy
vis a vis capital markets. The second was to engineer a controlled housing asset price bubble via
subsidized loans provided by the re-politicized Central Bank and a renationalized retail banking sector,
which benefitted SMEs, crony capital groups and households. The global liquidity squeeze of 2022
undermined both. By late 2021, previous DFS objectives became unsustainable: A political deadlock
with the EU Commission over systemic corruption blocked EU transfers. These frozen funds, combined
with widening current account deficits and a phase of fiscal populism before general elections in April
2022 destabilized a model which had relied on fiscal restraint and on MNB’s stick and carrot approach
which had forced bank reserves and savings into forint denominated bonds via the quantitative limit
instrument (see part I) and subsidized bonds for households. Anticipating monetary tightening, the
Treasury launched its largest ever FX bond auction of $4.25 billion and EUR 1 billion in September
2021. After a decade spent on reducing it, the share of FX debt increased to 23,3% in July 2022 from
an absolute low of 15,4% in February 2020. While price controls on energy and food introduced in 2022
failed to stem a 21% core inflation and a collapsing exchange rate (IMF, 2022b), MNB hiked interest
rates from 0.6% in 2020 to 18% by October 2022 (Figure 13), ending the era of cheap credit.
Blocked EU transfers were highly salient in reversing DFS objectives: they depleted Central Bank FX
reserves and explained a more severe depreciation of the forint compared with regional counterparts
(Zsiborás, 2022). They also threatened the finance-real estate nexus: the largest sectoral impact of EU
transfers had been in real estate transactions and construction where they accounted for 9% and 4.6%
of growth (KPMG, 2017). EU transfers in Hungary thus played a comparable role in sustaining the
finance-real estate nexus to foreign portfolio investments in Türkiye.
Fiscal tightening forced the government to phase out the APP and subsidized green lending schemes
introduced under COVID19 to prop up financialization. After aggressive rate hikes, year-on-year
housing loans dropped by 31% by July 2022 (MNB, 2022b). With the return to orthodox monetarism,
the executive sacrificed the real estate bubble it had created to contain inflation and depreciation.
The government and MNB had closely coordinated de-financialization in 2010-2015 and re-
financialization in 2015-2020. In the new stagflationary, high interest rate environment however,
conflicts erupted over monetary policy. The governor of the Central Bank accused the government of
locking in a credit-fuelled construction-driven growth model by “investing in concrete and steel instead
of brains”, and “a fiscal program composed for two thirds of construction” (Matolcsy, 2021).
Conversely, the Orbán-aligned chairman of the Chamber of Commerce attacked MNB for being dovish
on inflation (Hornyák, 2022). Far-right opposition party Jobbik blamed both the government and MNB
for the forint’s depreciation and proposed to constitutionalize a strong exchange rate (MTI, 2022).
15
Internal conflicts within the state translated into degraded policy coherence: MNB contracted money
supply while pretending to leave the base rate untouched. In fact, it made a 18% overnight deposit rate
into the new, implicit policy rate, decoupling it from the official 13% base rate which lost its relevance.
This mirrored Türkiye where CBRT tightened money supply after 2018 while placating the President’s
refusal of high policy rates by introducing multiple rates which made monetary policy purposefully less
transparent (Yağcı, 2018, Apaydin and Çoban, 2022b).
The priorities of MNB and the government also conflicted regarding the externalities of subsidized
lending and shielding indebted households and NFCs: In 2020, the government introduced a temporary
interest rate cap on housing loans and mortgages indexed on interbank and MNB base rates: to avoid a
wave of defaults, these were extended until December 2022. Capped rates were indexed on the 2021
MNB base rate of 2% and an interbank rate of 2,4% - while they had in fact increased to 18% and 16%
respectively by October 2022. In October 2022, the government further extended capped interest rates
to SME loans. In March 2022 however, MNB had already warned that the scale of subsidized lending
(above 30%) and protections actually hindered monetary policy transmission (MNB, 2022d) given how
many interest rates were frozen by fiat.
The conflict-ridden consolidation of an anti-inflationary coalition should be appraised in light of Fidesz’
social bloc. Unlike Turkish export-oriented SMEs which are vital for AKP, Hungarian domestic capital
is concentrated in import-intensive and non-tradable sectors (Vakhal, 2020): 39% of SMEs rely on
imported intermediary goods, while 80% of export value is realized by foreign-owned multinationals
(KSH, 2018). Domestic capital is highly sensitive to cost-push inflation (Karas, 2021), and to exchange
rate volatility: containing both appeared as a shared concern for domestic capital and for wage earners.
In conjunction with structurally high public debt and a deep exposure of the renationalized banking
system to the sovereign, austerity and monetary contraction attempted to contain inflation, depreciation,
and the degradation of public balance sheets.
Türkiye
As noted earlier, several upheavals splintered the power bloc (Akcay, 2020) between a first-generation
bourgeoisie (older, highly internationalized, large financial and holding groups) and a second-
generation bourgeoisie (younger, gradually internationalizing, small and medium-scale capital groups
in construction and light manufacturing) with opposing demands on interest rate policy (Bozkurt 2021).
The state temporarily addressed their conflicts by increasing the repression of societal dissent and
resistance, centralising political power in the executive branch, and deepening financial statecraft (e.g.
Gezi uprisings in 2013, 2016 coup attempt, and the shift to the presidential system in 2017, 2018 crisis,
post-pandemic and the 2021-22 inflation cycle) (Akcay and Jungmann, 2022: 22).
In late 2020 and 2021, the CBRT’s tight monetary policy to address high inflation and exchange rate
volatility once again conflicted with the government’s stimulus policies (CBRT FSR, 2021: 4-9, 21;
CBRT MERSP, 2020: 5). CBRT maintained a restrictive monetary policy by preserving its policy rate
(which was raised in March 2021 once again) between April and August (CBRT MERP, 2021: 4), used
macroprudential instruments (CBRT FSR, 2021: 4-5), and signed three separate swap agreements with
the central banks of Korea, China (increasing the limit of the previous agreement), and Qatar (extending
the expired swap agreement for three more years) between May and September (CBRT MERP, 2021:
10).
Rapid policy rate cuts, continuously demanded by Erdogan (Deutsche Welle, 2021; Reuters, 2022),
reversed these measures in the last four months of 2021 amidst the executive’s announcements that
Türkiye was adopting a ‘Chinese model’ of export-oriented growth supported by competitive
depreciation (Hurriyet, 2021). This policy rollback resulted in yet another episode of currency crisis
and depreciation, dramatic inflation and capital outflows (CBRT Inflation Report, 2022; Figure 9). The
latter was exacerbated by the global liquidity squeeze following the Fed’s interest rate hikes throughout
2022.
16
<Insert Figure 13 here >
Figure 13. Monetary Policy Divergence
Source: (BIS, n.d)
As of October 2022, the official inflation rate reached 85.5% in Türiye (CBRT Consumer Prices, n.d.;
Figure 9) whereas the independent ENAG report set the same rate at 185.3% (ENAGrup, 2022). Facing
a hyperinflationary crisis, the executive counter-intuitively pressured CBRT to reduce its policy rate to
12% in August 2022 (CBRT MPC Press Release, 2022a). The post-2018 shift to PSG has enabled more
direct executive interventions in monetary policymaking. The endorsement of loose monetary policy
aligned with the short-term interests of export-driven capital groups by facilitating the depreciation of
the lira.
The new monetary policy simultaneously alienated the highly internationalized, big capital groups
which maintained strong presence in finance/banking sectors as well as higher value-added industrial
sectors which favoured a strong lira and high interest rate policy (Akcay and Jungmann, 2022; Bozkurt,
2021: 14-18). Wage earners paid the price of a weak lira in a hyperinflationary context, which enhanced
dispossession and further proletarianization (Inanc, 2021).
A low value-added export-driven growth strategy, already mobilised in the previous crisis cycles of the
1980s and 1990s, has deepened the cracks of the social bloc (which includes the power bloc made up
of the state and dominant capital groups as well as the subordinated classes), enhancing the
accumulation/legitimation dilemma of the Erdogan regime (Akcay and Jungmann, 2022: 22-23). These
cracks were visible in criticisms voiced by the representatives of the first-generation bourgeoisie against
the new economic policies (TUSIAD, 2022). But representatives of the second-generation bourgeoisie
also expressed concerns over high inflation and exchange rate volatility given their impact on the
external debt payments and pricing practices (Dunya, 2021; MUSIAD, 2022).
The low interest rate policy accelerated the lira’s collapse and produced new and more visibly
authoritarian DFS interventions: the government attempted to reverse dollarization with the ‘permanent
and strengthened liraization’ (CBRT MPC Press Release, 2022) and indirect capital controls (Reuters,
2022a; Ahval, 2022) by attempting to appropriate NFC dollar revenues and household dollar deposits
to stem the current account deficit and replenish depleting FX reserves needed to support the lira’s
exchange rate.
Nevertheless, these DFS instruments neither managed to convert large volumes of FX deposits to lira
(Kubilay, 2022) nor stopped depreciation and hyperinflation. They also eroded the consent and co-
optation of subordinated classes exacerbating the legitimation dilemma of the Erdogan administration
despite renewed attempts to pacify low-income households via a vast social housing programme
announced in September 2022 (Pitel, 2022a)
The executive attempted to stem inflation and depreciation without a monetary tightening which would
have undermined its social bloc: To do so, it forced the introduction of capital controls, tried to
appropriate the forex deposits of private actors, and boosted CBRT’s FX reserves with international
swap agreements. Controversially, it also recycled massive Russian capital inflows attempting to evade
US sanctions (Pitel and Samson, 2022). Under these adverse circumstances, state-driven
financialization only sustains a radically narrowed power bloc in the eve of 2023 general elections while
the cost-of-living crisis amid hyperinflation erodes the societal consent rapidly.
Conclusion
Our intervention contributes to the state of the art in three ways: Firstly, we link the research agendas
on monetary policy, financialization and authoritarianism in EMEs without reifying a monocausal link:
we don’t explain authoritarianism with financialization – instead, we identify the features of a specific,
authoritarian statist mode of financialization (AF) in EMEs. We show how exposure to global liquidity-
17
and exchange rate volatility under subordinate financialization can spur EME states to develop new
forms of financial statecraft, which aim to re-govern finance and to govern society through finance
(Braun et al., 2018). AF shares with AE modalities of financialization the objectives of sustaining
finance-based growth and pacifying society with cheap credit and asset price bubbles (Adkins et al.,
2020) and solving the interrelated problems of financing sovereign debt, enhancing monetary policy
transmission and fuelling credit-based growth (Braun and Gabor, 2020). Whereas this project is carried
out by depoliticized, independent Central Banks in AEs, under AF, the very visible hand of the
executive fuels credit-based growth by centralizing political control over the social allocation of money
in ways which parallel state monopolies over resource rents.
Secondly, we emphasize that convergence to state-engineered asset price bubbles shouldn’t deflect
attention from significant variation in external financing conditions, the macroeconomic and political
function of sovereign debt in a national economy, as well as the social and sectoral compositions of
rentier social contracts enabled by financialization. As monetary policy plays a dual role in managing
both sovereign and private debt, these underlying differences are important to explain different policy
preferences when AF regimes face zero-sum trade-offs between the external and internal functions of
monetary policy.
Thirdly, we point out the crisis-ridden nature of AF as a state capitalist strategy to mitigate the
destabilizing impacts of financialization, while harnessing the opportunities of credit-based growth for
stabilizing authoritarian regimes. Transposing the arguments of Poulantzas and Offe to financialization,
we observe that authoritarian state control over money in EMEs merely internalized distributive
conflicts within the state, eroded monetary policy coherence and locked in pathways of coercive
escalation instead of delivering macro-financial stability or unlocking new growth models. In an era
when financial sovereignty has become a politicized question in many EMEs (Ben Gadha et al., 2021),
our study signals the limits of nationalist authoritarian statist strategies to expand the state’s relative
financial autonomy. The EU’s crisis management under COVID19 showed that Core economies and
Central Banks have the capacity to stabilize peripheral bond markets (Eichacker, forthcoming): AF fills
the void of comparable mechanisms of macro-financial stabilization at a global level.
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27
FIGURES:
Figure 1. Interest Rates 2002-2022
Source: Federal Reserve Economic Data (FRED)
Figure 2. Real Estate Bubbles
Source: Federal Reserve Economic Data (FRED)
-2
0
2
4
6
8
10
12
14
16
0
10
20
30
40
50
60
70
80
1999-11-01
2000-09-01
2001-07-01
2002-05-01
2003-03-01
2004-01-01
2004-11-01
2005-09-01
2006-07-01
2007-05-01
2008-03-01
2009-01-01
2009-11-01
2010-09-01
2011-07-01
2012-05-01
2013-03-01
2014-01-01
2014-11-01
2015-09-01
2016-07-01
2017-05-01
2018-03-01
2019-01-01
2019-11-01
2020-09-01
2021-07-01
2022-05-01
Policy rates in %
Turkey (LHS) Hungary (RHS)
80
100
120
140
160
180
200
2009-10-01
2010-03-01
2010-08-01
2011-01-01
2011-06-01
2011-11-01
2012-04-01
2012-09-01
2013-02-01
2013-07-01
2013-12-01
2014-05-01
2014-10-01
2015-03-01
2015-08-01
2016-01-01
2016-06-01
2016-11-01
2017-04-01
2017-09-01
2018-02-01
2018-07-01
2018-12-01
2019-05-01
2019-10-01
2020-03-01
2020-08-01
2021-01-01
2021-06-01
2021-11-01
2022-04-01
Real Residential Property Prices (2010=100)
Turkey Hungary
28
Figure 3. Sovereign Debt
Source: (IMF, 2022)
Figure 4. Hungary’s 2 Phases of post-GFC Stabilization
Source: World Bank
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Domestic Credit to Private Sector by Banks % of GDP
HUN TUR
29
Figure 5. Self-Financing
Source: Eurostat [GOV_10DD_GGD]
Figure 6. Hungary’s Export-Competitiveness Crisis
Source: World Bank
0
5
10
15
20
25
30
Household Share of Government Debt 2021
-10
-5
0
5
10
2000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Current Account Balance % of GDP
TUR HUN
30
Figure 7. Negative Correlation of Credit and Exports in Hungary’s Growth Model
Source: (MNB, 2022a, MNB, 2022b)
Figure 8. The finance-real estate nexus
Source: (KSH, 2022, MNB, 2022c)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
0
100
200
300
400
500
600
700
2008 Q1
Q3
2009 Q1
Q3
2010 Q1
Q3
2011 Q1
Q3
2012 Q1
Q3
2013 Q1
Q3
2014 Q1
Q3
2015 Q1
Q3
2016 Q1
Q3
2017 Q1
Q3
2018 Q1
Q3
2019 Q1
Q3
2020 Q1
Q3
2021 Q1
Q3
Current Account Balance to GDP
Household Loans in HUF bn
HUNGARY CURRENT ACCOUNT VS
HOUSEHOLD LENDING
4-quarter average household loans (LHS) Current Account (RHS)
0
50
100
150
200
250
-20
-10
0
10
20
30
House price index 2015 = 100
Year on year growth %
LENDING TO PRIVATE SECTOR AND
HOUSING PRICES
SME lending (year-on-year) LHS Household Lending (year-on-year) LHS
Housing Prices (2015 = 100) RHS
31
Figure 9. Consumer Price Index in Türkiye (Annual % change) (2018-2022)
Source: (CBRT, n.d.)
Figure 10. The APP and the finance-real estate nexus
Source: own calculations based on MNB and press (see appendix)
0
10
20
30
40
50
60
70
80
90
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
Feb-21
Apr-21
Jun-21
Aug-21
Oct-21
Dec-21
Feb-22
Apr-22
Jun-22
Aug-22
Oct-22
CPI (Annual % change)
Construction
& Real Estate
35%
Services
16%
Energy
13%
Agrifood
12%
Manufacture
8%
Retail
8%
Automotive
6%
Machinery
2%
Beneficiairies of MNB APP BY SECTOR
32
Figure 11. Lending to SMEs
Source: (MNB, 2022c)
Figure 12. Debt service ratios for the non-financial private sector (Hungary and Türkiye)
Source: (BIS, n.d)
659
432 364
184 230 172 127
147 218 132 99 99 23 32
0
100
200
300
400
500
600
700
Real estate Trade
service
Manufact. Construction Agricult. Financial
serv.
Logistics
HUF bn
SME Loans by Sector 2021
Total Disbursements Subsidized Schemes
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2008-Q1
2008-Q3
2009-Q1
2009-Q3
2010-Q1
2010-Q3
2011-Q1
2011-Q3
2012-Q1
2012-Q3
2013-Q1
2013-Q3
2014-Q1
2014-Q3
2015-Q1
2015-Q3
2016-Q1
2016-Q3
2017-Q1
2017-Q3
2018-Q1
2018-Q3
2019-Q1
2019-Q3
2020-Q1
2020-Q3
2021-Q1
2021-Q3
2022-Q1
Debt service ratios for the non-financial private sector
(HU and TR)
Hungary Turkey
33
Figure 13. CBRT and MNB Policy Rates (2020-2022)
Source : (BIS, n.d.)
Sources :
BIS n.d. Central Bank Policy Rates. https://www.bis.org/statistics/cbpol.htm accessed on
21/11/2022.
BIS n.d. Debt service ratios for the private non-financial sector (TR, HU).
https://www.bis.org/statistics/dsr.htm?m=2671 accessed on 23/11/2022.
IMF 2022. Sovereign Debt Investor Base for Emerging Markets. In: FUND, I. M. (ed.) April 29,
2022 ed. Washington D.C.
CBRT n.d. Consumer Prices (Turkstat Data).
https://www.tcmb.gov.tr/wps/wcm/connect/en/tcmb+en/main+menu/statistics/infl
ation+data accessed on 22/11/2022.
KSH 2022. Housing Prices Report. Budapest: Hungarian Central Statistical Office (KSH).
MNB 2022a. Housing Market Report May 2022. Budapest: MNB (Hungarian Central Bank).
MNB 2022b. Report on the Balance of Payments April 2022. Budapest: MNB (Hungarian
Central Bank).
MNB 2022c. Trends in Lending March 2022. Budapest: MNB.
i
Erol (2019: 738) argues that these measures have contributed to the rapid commodification of housing and a
speculative construction boom in the country; however, household and housing consumption financialisation
have not accompanied this process to the same degree due to the legal and institutional set up of the mortgage
system in the cautious post-2001 policy environment, the high inflation and unemployment rates, and the low
income levels. During this period, housing credit market has remained accessible mainly to upper- and middle-
class households (ibid.: 732-3; see also Arslanalp, 2018: 26-7).
0
2
4
6
8
10
12
14
16
18
20
Policy Rates 2020-22
Hungary Türkiye
