Return to Transcripts main page
First Move with Julia Chatterley
U.S. Congress Set to Vote This Week on Debt Ceiling Agreement; Ukraine: 67 Russian Air Targets Destroyed Overnight; House Set to Vote Wednesday to Raise Debt Ceiling; Erdogan Wins Unprecedented Third Term in Sunday's Vote; Kyiv Mayor: Explosions Reported in City; Reports: Queen's Music Catalog could sell for $1B. Aired 9-10a ET
Aired May 29, 2023 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JULIA CHATTERLEY, CNN HOST, FIRST MOVE: A warm welcome to FIRST MOVE great to have you with us on this Memorial weekend Monday. Just ahead this hour
layer alerts the Turkish currency falling to fresh all-time lows after President Erdogan's unprecedented reelection victory the opposition calling
it the most unfair vote in years.
Erdogan set to appoint a new cabinet following so far unsuccessful attempts to reduce soaring inflation the very latest on his plans from Istanbul just
ahead. Plus a missile barrage Russia launching an unusual daytime attack against Kyiv Monday following another wave of missile strikes overnight an
attempt perhaps to weaken Ukraine's air defenses ahead of that highly anticipated spring offensive.
Well, we're live in Ukraine with the very latest. And "Deal Dash" Congress set to vote Wednesday on the weekends' agreement to raise the debt ceiling
and limit spending President Biden and House Speaker McCarthy confident that they can pass this but holdouts unlikely on both sides with less than
a week to go before a potential U.S. debt default potentially.
Even if all this does get resolved in time does America still deserve its AAA credit rating following all the latest drama? We'll be discussing. And
in the meantime, Asian markets broadly higher Monday as investors there react positively to that framework and agreement.
The NIKKEI is still on fire up more than 1 percent that now takes it to a 33 year high. More cautious trading however across Europe, UK markets are
closed for a bank holiday this Monday too. And of course Wall Street is closed as well.
So lighter trading expected and it may be a holiday in the United States but no day off for congressional leaders trying to sell their debt ceiling
plan to the rank and file the outcome of this week's vote still not certain with lots of work ahead to win over opponents. And Arlette Saenz reports
now from Washington. Arlette, great to have you with us! Actually she's not with us we're going to watch this.
ARLETTE SAENZ, CNN U.S. CORRESPONDENT (voice over): With the nation barreling towards a default President Joe Biden and House Speaker Kevin
McCarthy brokered an 11th hour deal to raise the nation's debt limit.
JOE BIDEN, PRESIDENT OF THE UNITED STATES OF AMERICA: We've reached a bipartisan budget agreement. Now we're ready to move to the full Congress.
And I think it's a really important step forward excuse me. It takes the threat of catastrophic fall off the table.
SAENZ (voice over): The 99 page bill the results of weeks of tense negotiations. The agreement would raise the debt ceiling until 2025 after
the presidential election, and would cap non-defense spending for fiscal year 2024 after certain adjustments. A White House official says that
includes shifting $20 billion in IRS funding to other non-defense areas and rescinding $30 billion in unspent COVID relief funds.
REP. KEVIN MCCARTHY (R-CA): We know at any time when you sit and negotiate within two parties, but you got to work with both sides of the aisle. So
it's not 100 percent of what everybody wants. But when you look the country is going to be stronger. This is going to be transformational, where
Congress is literally going to vote to spend less money this year than we spent last year.
SAENZ (voice over): A major sticking point in the negotiations, tightening work requirements for government assistance. This deal raises the work
requirements age for those receiving food stamps from 49 up through the age of 54 but makes exceptions for Veterans people experiencing homelessness
and former foster youth.
White House officials say they expect the number of people subjected to food stamp work requirements will remain about the same. With the details
ironed out Biden and McCarthy now need to sell the deal to their respective parties. But the far liberal and conservative wings in Congress are already
bulking. The House Progressive Caucus frustrated with those expanded work requirements.
REP. PRAMILA JAYAPAL (D-WA): Absolutely terrible policy does not reduce spending, actually, by some estimates, creates a burden on administrative
spending. That is actually worse for you know, for the overall cost of a program like that.
SAENZ (voice over): The conservative House Freedom Caucus is also pushing back saying the deal does not cut spending enough with key members tweeting
no Republican capitulation and hold the line.
REP. DUSTY JOHNSON (R-SD): Those votes were never really in play. We get that but overwhelmingly Republicans in this conference are going to support
the deal. How could they not it is a fantastic deal.
CHATTERLEY: How could they not? That was Arlette Saenz reporting from Washington. President Biden joining other world leaders in congratulating
Turkey's Recep Tayyip Erdogan the Turkish President reelected for an unprecedented third term after a highly contested runoff vote.
He secured 52 percent of the vote while his challenger Kemal Kilicdaroglu received nearly 48 percent. And now the hard work really begins to tackle
high inflation boots jobs and growth and fulfill one of his major election promises the return of 1 million Syrian refugees.
(BEGIN VIDEO CLIP)
RECEP TAYYIP ERDOGAN, TURKISH PRESIDENT: Today we have achieved the voluntary return of nearly 600,000 people to save areas in Syrian
territory. With the new resettlement project we are carrying out with Qatar, we will ensure the return of 1 million more people in a few years.
(END VIDEO CLIP)
CHATTERLEY: Nada Bashir joins us from Istanbul. Nada great to have you with us! The vote does suggest despite his win a much divided nation with
the two camps having very different visions of where they want the country to head. How does he close that gap? Where does he begin?
NADA BASHIR, CNN CORRESPONDENT: Well look, Julia it is a huge challenge for President Erdogan. Never before have we seen it come to a run off in
the presidential elections. So President Erdogan certainly has some challenges ahead.
We heard from the opposition leader Kemal Kilicdaroglu speaking yesterday. He spoke about this and said that the results themselves really showed the
polarization of the nation and the fact that there is a significant portion of the Turkish population that does want change that does want a different
future for Turkey after more than two decades of President Erdogan's leadership.
But we were at the AKP Party Headquarters yesterday as that victory was announced hundreds of people gathering in support of President Erdogan.
Their message was that they were voting for political stability. Take a look.
BASHIR (voice over): Cheers of triumph, a declaration of victory. President Recep Tayyip Erdogan securing yet another term in office after a
closely fought one off election on Sunday, Erdogan the incumbent AKA Party came away with just over 52 percent of the vote, according to preliminary
results. A comfortable win in the face of what many analysts believed to be his biggest political challenge in over two decades.
BASHIR (on camera): You can see the crowds behind me thousands of President Erdogan's supporters have gathered to celebrate his election
victory and there is a real sense of jubilation of triumph here. These are some of his most ardent supporters.
UNIDENTIFIED FEMALE: We love him very much. He's our father, our grandfather our everything. We voted for him because we trust him. We love
him very much. We are always with him.
BASHIR (voice over): In the opposition camp, Kemal Kilicdaroglu the Leader of an alliance of opposition parties fell by more than 2 million votes
behind Erdogan a bitter blow to a once optimistic coalition hopeful for change in Turkey.
KEMAL KILICDAROGLU, TURKISH OPPOSITION LEADER: In this election the will of the people to change an authoritarian government became true despite all
BASHIR (voice over): The challenges ahead for the president are many chief among them the economy. Turkey is in the depths of a severe cost of living
crisis, with soaring inflation and a plummeting Lira caused in large part for Erdogan's own unorthodox monetary policies.
Meanwhile, anger of the state's poor preparation and chaotic response to February's devastating earthquake is still wrong. With more than 50,000
people killed and millions more displaced by the disaster. On the global stage, Turkey strong man has cemented the country's place as an influential
power broker in the region, sometimes at the cost of straining relations with the West.
But at home, his leadership has stoked fears over the future of democracy in Turkey. Over recent years, Erdogan has doubled down on crushing dissent,
centralizing his grip on state power, and ensuring his near total influence over the country's media. Despite criticism supporters maintain that this
is a win for political stability.
For opponents, however, Sunday's result has only deepened fears that the country could be heading ever closer towards authoritarian territory.
BASHIR: Of course, it's just another five years in power for President Erdogan. There are some challenges ahead. He plans when it comes to the
economy to follow through with his current vision for the Turkish economy keeping interest rates low despite the hyperinflation that we've seen,
despite the severe cost of living crisis.
And then as you mentioned earlier, Julia those plans to relocate Syrian refugees back home as part of a joint partnership with the Qatari
government. So there are some huge challenges ahead and of course we can't forget Turkey's role on the international stage.
We have over the last year seen Turkey, positioning itself as a sort of mediator figure in the war in Ukraine that is certainly going to continue
for President Erdogan. We saw the successful brokering of the Black Sea Grain initiative deal by Turkey between both Russia and Ukraine and Turkey,
as we have learned President Erdogan aiming to keep that relationship with President Putin despite the criticism that concern that he has heard from
his NATO and Western allies.
CHATTERLEY: Yes, hugely important issues both for ordinary Turkish people to your point and the geopolitics around the world too. Nada great to have
you with us thank you Nada Bashir there and more on Turkey and the economic implications of that election victory later, in the show.
Now to something different than the latest space launch. And this time, its China, the country's first ever civilian astronaut will be part of the
three member crew heading to China's space station. This will be the fifth manned mission there since 2021.
Will Ripley joins us now. China's got pretty lofty goals for space, including I was reading this morning building a base one day on the moon
and a manned moon mission by 2030. This is important though, because before now, it's been about the military and this is the first civilian.
WILL RIPLEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: Absolutely, Julia. Yes, the Shen Jo 16 will go down in history, if everything goes as planned
that it takes off just after 9:3 0am tomorrow, local time. It's 9:30 pm on Monday, Eastern Time.
But it will have a professor at Beijing University of Aeronautics and as an aeronautics and astronomy payload expert who's actually going to be the
first civilian, as you mentioned, previously, every single Chinese astronaut has been a member of the People's Liberation Army.
And so now the fact that they have the confidence to put not just military trained experts, but they actually civilians who are going to be conducting
scientific experiments, this is going to be a very important step forward in China's rapidly advancing space program.
Remember Julia, it was just over a decade ago, back in 2011, that the United States banned NASA from participating with China's space agency,
citing concerns about China using technology that would be shared on the International Space Station to advance its intercontinental ballistic
Well, now here we are. And you have China very quickly kind of ticking off the list of accomplishments that they hope to achieve; of course, they're
playing catch up by decades with the United States and with Russia.
But the speed at which China's Manned Space Agency is really advancing here, the fact that they're now we're going to have a permanent presence in
low Earth orbit, about 400 or so miles, I should say, 400 or so kilometers, about 250 miles above the earth's surface, they're going to have three
astronauts at this space station, rotating every, you know, few months or so.
This crew is going to be on until November, and then they will be swapped out for a new crew. So certainly the United States watching this very
closely, Russia watching this very closely, to see how China's space advances help them not only in the civilian sector, but also the military
sector as well, Julia.
CHATTERLEY: What are they said to that point Will about the prospect for some kind of international cooperation?
RIPLEY: They're open to it. They haven't said to what extent they would cooperate with other countries. But they have said that, yes, they are open
to the idea in theory of working with other nations.
And of course, China has been trying to expand its geopolitical influence in the diplomatic realm, it would make sense that now if they have this
space station, that they might reach out to countries that have not been participating necessarily in the International Space Station, or even
countries that are with some sort of an offer to collaborate to work together to advance technology in various areas.
And so we have to watch to see what China's doing. But they certainly bite by this launch and by having now a civilian go into space, they're sending
a very clear message that they are in space, they're in space to stay. And they're perhaps in space to win.
They want to have people on the moon. And they want eventually, of course, as the United States shares the goal as well you know send missions to
Mars. So this new space race that's evolving very quickly, you're Julia, the latest chapter of that will happen with this launch of the Shinjo 16
tomorrow morning, local time.
CHATTERLEY: Yes, very exciting. We should watch it closely. It's too early for me to pronounce that sentence that you said at the beginning,
aeronautics and astronomic. So look, I did it. Well done.
RIPLEY: Thank you. It's such a ton --
CHATTERLEY: I know. That was a really brave decision, and it was flawless execution. And I was smiling the whole way through preparing.
RIPLEY: It was a failure at this point. We'll try again.
CHATTERLEY: See you tomorrow and we'll discuss again. Will Ripley, thank you.
RIPLEY: All right.
CHATTERLEY: OK, let's move on. Ukrainian air defenses shut down dozens of cruise missiles and drones targeting Kyiv this Monday. The Capital has been
targeted on 15 separate days this month alone.
Sam, we're continuing to see this pattern of bombardment 15 days this month alone, I just wondered whether some part of this is the desire to weaken
Ukraine's air defenses ahead of what we keep talking about the highly anticipated spring offensive is certainly trying to get them on the back
SAM KILEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: Yes, in fact, because there were also attacks now in daylight, slightly unusually, in this latest
phase of the war, where you've seen children running for cover screaming, there's burning debris been falling on vehicles, from missiles that have
been shot down, in particular the Iskander missiles, which is a very potent Russian surface to surface and air to surface missile that they used in the
But we haven't seen so regularly used here, much less defended successfully against in Kyiv, but that's just what happened. So as daylight brings it to
day 16 of this campaign during May, as you rightly point out that Julia, very much focused on Kyiv wearing down the air defenses, trying to find a
way through to the command and control structures of the Capital.
But now clearly also trying to work on the minds and the bodies effectively, of Ukrainian civilians with this outright attack against
civilian targets in a civilian city during the day, so very aggressive campaign a higher number than we've seen for a long time. Over 70 missiles
fired out by Russia overnight, both cruise missiles and drones, all of them are nearly all of them are shot down by this the air defenses.
But again, this is all about a question of supply the everyday that Ukraine uses its air defenses, which come largely from overseas from foreign
nations. They need resupply and the Russians know that. So it's a very deliberate attempt to wear them down ahead of this as you rightly point
out, anticipated summer offensive Julia.
CHATTERLEY: Can I ask about neighboring Belarus because, well, just days after President Lukashenko said that Russia was transferring tactical
nuclear weapons to Minsk. We have President Lukashenko offering nuclear weapons to nations that are willing to join the union state of Russia and
Belarus. I mean, we can talk more broadly, but have we seen any weapon transfers? What do we know on this?
KILEY: So these are not weapons transfers as such not into the hands of the Belarusians, but allowing Russian Russia to station tactical nuclear
weapons on Belarus and soil that is part of the Belarusian agreement with the Kremlin.
What Lukashenko is adding to here rather bizarrely, is saying that anybody wants to join Russia and Belarus's defense pact effectively can get some
nuclear weapons. Now, the Belarusians don't have any, they have nothing in that regard to give anybody.
So when they still have come from President Putin, it would be deeply alarming for the international community because he'd be trying to expand
the structures of the effectively trying to return perhaps to some Soviet era level of nuclear proliferation.
But the fact of the matter is that Belarus can offer anybody any number of nuclear weapons because its pockets are empty of nuclear weapons. I think
probably what it is indicating, though intended to do is rattle the West and get them thinking more about the dangers of nuclear proliferation.
For example, if those tactical nukes coming from a Russia were to take up permanent residence in Belarus, with that then presage the movement back
into that territory of intercontinental ballistic missiles, or much more potent nuclear weapons. So I think, really, it should be seen in that
CHATTERLEY: Yes. If you're hypothetically promising to give someone else's weaponry away, though, in this case, Russia -- I wonder if he checked with
the Kremlin first Sam thank you for that Sam Kiley there joining us from Eastern Ukraine.
OK straight ahead, a debt deal to avoid the U.S. default looking more likely. But is this how a AAA rated country should behave? We'll discuss
with Rating Agency Morningstar and the implications after the break. And later, awareness we've discussed for President Erdogan in Turkey will it be
a win for the economy? Investors so far, begging to differ, we'll discuss.
CHATERLEY: Welcome back to FIRST MOVE. Debt ceiling drama avoided, not quite yet. The White House and senior Republicans agreed to limit spending
and raise the debt ceiling this weekend. But of course now U.S. lawmakers have to vote on it. And that's set to happen on Wednesday. But speaking
Sunday, President Biden had some tough love for the critics.
(BEGIN VIDEO CLIP)
BIDEN: The agreement prevents the worst possible crisis on default for the first time in our nation's history and economic recession. Retirement
accounts devastated millions of jobs lost.
UNIDENTIFIED FEMALE: What do you say to members of your own party who say he's made too many concessions in this field?
BIDEN: No find I didn't?
(END VIDEO CLIP)
CHATTERLEY: Yes, compromise. That's what it takes. In the last hour White House Communications Director Ben LaBolt defended the budget agreement on
CNN this morning. Here's what he told my colleague Erica Hill.
(BEGIN VIDEO CLIP)
BEN LABOLT, WHITE HOUSE COMMUNICATION DIRECTOR: We think we've landed in a reasonable place that recognizes that there's a Democratic White House and
Republican House and ultimately some bipartisan compromise is needed for the legislation to pass at the end of the day.
(END VIDEO CLIP)
CHATTERLEY: Treasury Secretary Janet Yellen estimates the X date when the Treasury has to start prioritizing what payments it makes to whom is now
June 5th. So the timeframe is tight. Next week, the Treasury Department is scheduled to make an estimated $92 billion worth of payments and transfers.
They say they need a deal effectively to meet all of those spending commitments. The U.S. government has never defaulted on its debt, but that
didn't start reading agencies including Morningstar placing the USS AAA credit rating under review.
Joining us now is Michael Heydt. He's the Senior Vice President of Global Sovereign Ratings at Morningstar. Michael, great to have you on the show!
We appreciate you being awake for us this morning on a holiday weekend, how confident are you that this deal will be agreed?
MICHAEL HEYDT, SVP, GLOBAL SOVERIGN RATINGS, DBRS MORNING STAR: Well, I don't have the odds for you. We're clearly interested in how things play
out this week. But if you look at the leadership of both parties, they need 218 votes to pass this bill and the lower in the House.
The Freedom Caucus on the right accounts for roughly 40 votes, we think probably most of them will vote against this bill. On the left, you have
the progressive, that's about 100 members. Some of them might also vote against this bill. But I think if the moderates in both parties coalesce
around their leadership, they should have the votes to pass this But that said, this is you know, we'll have to see how things play out over the next
CHATTERLEY: Yes, so that's not an absolutely confident and obviously time's running out, as I pointed out in the introduction. Just talk to me
even if it takes a bit of time and a bit of negotiation if we go past that X date, which the Treasury is now saying is June 5th is your expectation
that above everything else the U.S. Treasury prioritizes the repayments of debt and interest payments on that debt above anything else?
And is that the right decision?
HEYDT: Right. So if we get past the X date, what we'll be looking at is exactly that. How does Treasury operate post X date? Our expectation, not
with a high degree of confidence, but our expectation is that Treasury would prioritize interest payments and rollover debt as it matures in order
to avoid a default.
And that would mean that non interest spending would need to be delayed. The implications of that could be quite negative for the economy. I think
we could see a negative shock through three channels. One is the competence channel, as consumer sentiment would probably deteriorate equity markets
We'd see households and firms pull back, given that level of uncertainty, you would see a shock through the credit markets as interest rates rise and
credit becomes less available. And then lastly, you would have this fiscal drag, which might be modest at first, as some checks are delayed.
But once you really saw Social Security, Medicare, Medicaid, those types of spending items being delayed, the drag could be quite significant. And so
if we get to that scenario where we're Treasury is prioritizing debt payments, we think you can see economic activity really take a hit in June
and only get worse through the third quarter.
CHATTERLEY: Yes, they're flirting with real danger. Do you expect volatility in financial markets around that X date anyway even if the deals
in the works there's just a sort of shuffle going on to get this that centrists together in Congress to agree to this? Could we still see some
HEYDT: There definitely could be volatility this week, as I think there is going to be a lot of theater in Washington about how members are going to
vote. Like I said, I think they have the votes, but it's not at all certain. And as you mentioned, they need to do this quickly. So there's not
a lot of time. The X date is June 5th, or the week of June 5th. So this needs to happen quite quickly.
CHATTERLEY: The sad fact is Michael, and I look at this situation. And we have been here before that if you look at the polarization in politics, in
Washington, and in other countries, but specifically Washington, these standoffs, overspending, and budgetary commitments will continue,
particularly as the laws stand.
Does a nation like the United States deserve justify having a AAA rating at this stage when they put investors, citizens, but primarily investors in
this case, through the uncertainty that we've seen once again over the last month?
HEYDT: Yes, you know, I think the U.S. has exceptional credit strengths. It has an enormous economy. It's highly productive, highly innovative. It
has the world's reserve currency. It has very strong governing institutions. And so these factors really support the U.S. capacity to pay.
I don't think that there's any concern on our part about the U.S. capacity to pay. But this debt ceiling issue does raise questions about the
willingness. And we think that it's a very low likelihood, there's a lot of drama about around the debt ceilings, but each individual episode has a
very, very low likelihood, we think of an actual default.
However, if you saw that go again, and again, and again, at some point, you have to wonder whether the cumulative risk is no longer consistent with the
AAA. So we are looking at that that is something that we worry about with regards to polarization in the U.S. So it's certainly something we're going
to take into account going forward.
CHATTERLEY: Yes, because it always makes it worse having the capacity to pay your debts and the interest on your debts. But lacking the willingness
to use your work to pay for me, in some ways, is worse. On the brighter side, assuming this all gets agreed, when do you decide to take them off
rating watch negative?
HEYDT: So under reviews are typically 90 days, they're typically resolved within that timeframe. In this case, I suspect it would be much, much
shorter period. We put it under review just last Thursday. What we want to see is the debt ceiling and they're lifted or suspended by the state. And
then I think shortly thereafter, we could make a decision on how to go forward.
CHATTERLEY: Yes, Michael, sort of whole load of nothing, just politicking for no real reason and a lot of them damaged potentially, in the process.
Great to have you with us sir, get back to your holiday weekend thank you.
HEYDT: Thank you Julia.
CHATTERLEY: Michael Heydt there. Thank you. All right coming up after the break, Turkey's President Erdogan celebrates his election win the Lira
sinks to new lows on fears for the future. What comes next? That's next.
CHATTERLEY: Welcome back to FIRST MOVE, the Turkish Lira hitting a fresh record low on Monday after President Recep Erdogan secured a victory in
Sunday's Presidential election run off. The Lira has shrunk to around 7 percent since the start of this year, but it's also lost more than 90
percent of its value against the U.S. dollar over the past decade.
The election cycle resulted in a surge of spending and promises to the Turkish people, despite the nation already facing a record high budget
deficit and rampant inflation. On the latter, the President has said he will continue the unorthodox policies to help address it such as cutting
interest rates, rather than raising them.
Selva Demiralp is the Professor of Economics at Koc University in Istanbul and joins us now. Professor great to have you on the show with us, you said
that you saw this election run off as a last exit for the country. And that exit has now been missed. Describe what you mean?
SELVA DEMIRALP, PROFESSOR OF ECONOMICS AT KOC UNIVERSITY: Sure, the economic policies proposed by the government and the opposition were
radically different from each other, with the opposition promising a return to orthodox policies and abandoning the current low interest rate
And unfortunately, there is no such world where you can cut interest rates and grow indefinitely because at some point the inflationary pressures and
the risk premiums are going to tighten financial markets and slow down the economy. And Turkey has been suffering consequences for quite some time
But instead of reassessing its policies and adopting a more orthodox approach the government chose to continue with low interest rates and
suppress the side effects by channeling more funds into the economy and unfortunately, going deeper into untested grounds of trouble.
That's why I thought the runoff would be the last exit before we enter this uncharted territory. But last night's results show that they missed the
exit. And at this point, I see an inevitable slowdown in the Turkish economy. To me, the question is whether it's going to be a more controlled
slowdown, or a sudden stop?
CHATTERLEY: We'll explore that in a second. But it's interesting when you're showing videos of people celebrating and listening to the President
speaking. Obviously, there are many reasons why people choose to vote. But why do you think the majority of voters did decide to elect him despite
some of the economic challenges that they're facing?
Can an argument be made that some of his policies perhaps cushioned his base supporters, or that they even don't really understand the consequences
of the policies that the President has chosen to promote up to now?
DEMIRALP: Absolutely, I think that's pretty much it. And I should note that we have been living beyond our means in an effort to stimulate growth
for quite some time now. And the election results reflect that now that the party is over, whoever ordered and consumed this feast is going to pick up
But Erdogan's victory reflects that, despite economic struggles that we have diagnosed as economists, his bases are at least 52 percent of the
population, and we're relatively more insulated from the economic deterioration. And more importantly, people are ignorant about the
postponed costs of the pre-election spending.
And what we have seen so far, in terms of the costs of low interest rate policies, I'm afraid is just the tip of the iceberg.
CHATTERLEY: You're as a nation already in uncharted economic territory, in many ways, because the nation is running a twin deficit, as we call it a
budget deficit, which means that you're spending more than you're raising and things like tax receipts, but also a current account deficit, which
means that you're effectively buying money or sending more money abroad in terms of services and goods than is coming in the other way.
These things aren't sustainable forever, Selva. Can you give us a sense of timing to your earlier point about a controlled slowdown or a less
controlled slowdown? How long? How much further can these policies last?
DEMIRALP: Unfortunately, that's the million dollar question. I mean, as economists, we can tell the direction and we can highlight that it's not
sustainable. And we haven't seen this for quite some time now. But we can also see that there is just very little room for the government to
maneuver, and the current policies which rely on cutting interest rates.
And then offsetting the pressures on the Turkish Lira depreciation by selling Central Bank's reserves is coming to an end because last week's
numbers on Central Bank 's reserves show that net reserves of Turkish Central Bank are now in a negative region like $-0.3 billion.
Which essentially means Central Bank does not have its own money to spend anymore, which suggests me that the said the government should either
consider rate hikes and pivot, despite President Erdogan's promises of a low interest rate policy moving forward. Or if they're not going to do
that, then we don't see more strict capital controls. But I'm afraid that would have grave consequences for an open economy like Turkey.
CHATTERLEY: And what about the banking sector? Because as we've seen in the United States, in particular, when the banks themselves are buying
government debt, but you keep interest rates artificially low that the price of them is high, if you then let interest rates rise or you raise
interest rates, the value of them drop and gaps are created.
How is the banking sector in Turkey at this moment in can that bear the brunt of rising interest rates if indeed, a situation calls for it.
DEMIRALP: So, bank balance sheets have been used as a monetary policy instrument in the last 1.5 years, because when the government cut the
policy rate, and yet inflationary pressures and the risk premium went up, market interest rates started increasing. And in order to repress market
interest rates, banks were required to buy government bonds in an effort to lower market interest rates.
So Turkish banks now are holding sitting on a lot of government bonds. And because they are required to buy these bonds, the interest rates are low
and the price is high.
But once an inevitable rate hike happens and I think that is a more likely scenario, as opposed to capital controls, then the prices of these bonds
that the banks are holding, are going to go down, which is going to mean capital losses for the banking sector. I should not have ever that I don't
foresee a problem like the way we see in the United States, because as a percentage of total bank balance sheets, those government bonds are a
relatively a small fraction.
CHATTERLEY: Yes, very important point to making and thank you for making it because that was going to be my next question. What's your advice to
people, Selva, to ordinary citizens? Just given the challenges that you're outlining the potential risks and what might inadvertently happen, if
necessary to stabilize the currency and the economics of the country? How should individuals behave? How should they save if they can?
DEMIRALP: Well, Turkey has had chronic inflation for decades therefore, the households are quite resilient. And they kind of know how to deal with
inflation. I mean, it's just you learn it by doing and people, for example, in an environment where markets rates turn negative in real terms, people
go ahead and buy dollars or gold.
So in that sense, financial literacy is quite high. Nevertheless, my advice would not be for the households, my advice would be for policymakers,
because they are the ones who are going to shape the relative gains or losses for the country.
And my advice would be to re-evaluate the consequences of policies, because we started this journey about a year and a half ago in September 2021,
where President Erdogan noticed that by cutting interest rates, we would be able to lower inflation, and also we would be able to promote growth.
So it was a win-win, there was hardly any trade off. But what happened was that not only that, after an initial acceleration of growth, we see an
inevitable slowdown, because increasing in inflation led to a decline in purchasing power. So we see a slowdown in consumption.
But also, what we observe is that inflation rates did not go down consistent with the orthodox policies. So the unorthodox journey, ended up
fulfilling the predictions of the orthodox economics where rate cuts do not really lower inflation, but trigger inflation.
So I would urge our policymakers to put these consequences of the policies together and reassess the policies moving forward, because Turkey is really
at a critical point right now. And I would hate to see an open economy adopting a more closed economy, Capital control. It will not only hurt
Turkish economy, but it will affect the rest of the world through supply chains.
Because as you know, after the pandemic, we have seen how globalized and how connected the entire world is, if Turkey cannot import intermediate
goods because of limited foreign currency, then we cannot produce let's say those appliance parts to ship to Germany, and Germany cannot produce the
refrigerators. And it would affect the entire global production network.
CHATTERLEY: Yes, when you're a smaller open economy, and you have a weaker exchange rate that can benefit your exporters and cushion you for a certain
period of time, but it don't last forever. Professor Demiralp, fantastic to have you on the show, thanks you so much for your insights today.
DEMIRALP: Thank you.
CHATTERLEY: OK, stay with CNN coming up Uganda, imposing one of the harshest anti-gay laws in the world. And that could even result in the
death penalty, the latest next.
CHATTERLEY: And returning to Ukraine now explosions have been reported around the capital Kyiv for the second day in a row. It comes as the West
awaits the nation's counter offensive plans. CNN's Sam Kiley traveled to visit some of Ukraine's new recruits preparing for the next stage of the
KILEY (voice over): These are new recruits training. They could be on the front line in a couple of weeks. In training mistakes are harmless.
KILEY (on camera): And what happened to you?
MAKSIM, UKRAINIAN RECRUIT: I got hit in the face with a pellet.
KILEY (on camera): How long have you been doing this training?
MAKSIM: Two months. I recently joined the Army. So for now I'm here for two months training.
KILEY (on camera): What do you think about the coming offensive? Do you want to get involved?
MAKSIM: Yes, I do.
KILEY (on camera): You're not worrying?
MAKSIM: I think we're going to win.
KILEY (on camera): These young men they've been having quite a lot of fun running around in the woods and sometimes things get quite funny. But
ultimately, this business is deadly serious. KILEY (voice over): These recruits could be weeks away from combat, pretend war, turning to this
where death is all too real.
UNIDENTIFIED MALE: He's not breathing!
UNIDENTIFIED MALE: What?
UNIDENTIFIED MALE: He's not breathing!
KILEY (voice over): Wounded veteran Colonel Oleksandr Piskun runs the training.
COLONEL OLEKSANDR PISKUN, NATIONAL GUARD: I know what it's like to lose loved ones. But this is war and there is no other choice. Of course, once
the unit goes into action some of these guys will die. They are all aware of that.
KILEY (voice over): That experience is hard one. Oleksandr came face to face with the Russian who shot him in Bakhmut last week.
KILEY (on camera): What would you say to young volunteers or conscripts joining now?
PISKUN: That you have to be prepared for anything. To be prepared for the good and the bad.
KILEY (voice over): The hospital's got plans for dealing with the Ukraine's offensive, which is expected this summer.
IHOR, UKRAINIAN ARMY: They will be tough to force back hard. They won't give up territory that easily. It's going to be a big fight, very big and a
lot of casualties.
KILEY (voice over): Colonel Piskun knows that this will not be his last memorial service. This military cemetery has space to grow. Soldiers are
confronted with grim truth here that many young men are forever in tuned in this parade of graves. Sam Kiley, CNN in Kryvyi Rih.
CHATTERLEY: OK, still to come here on FIRST MOVE. You may have seen this over the weekend. Venice menace new watery rose for the perennially
challenged Italian city.
This was Serious green far from routine that story just ahead.
CHATTERLEY: Welcome back to FIRST MOVE, Venice's famous Grand Canal has been mysteriously transformed into the green canal and unsettling
fluorescent green to be exact, and officials apparently still have no idea how or why. Barbie Nadeau is in Rome for us. Barbie, when I first saw this,
I thought maybe algae and then I thought maybe activists, do we have any sense of what the substance is yet?
BARBIE NADEAU, CNN CONTRIBUTOR: Well, you know, they're getting closer and closer, they're doing a lot of analysis, the first thing they did was to
try to determine if it's toxic or not, they said it's not dangerous to the flora and the fauna, certainly not more than anything else in the Venice
And now they're coming around to the idea that it's likely a tracing substance, it's used in underwater building and shoring up the structures
in Venice. You're supposed to use about a teaspoon of that at a time in order to see if there's water flow where there shouldn't be water flow.
And so they're under the impression now they're still doing lots of tests. Of course, it's not quick to do these tests thoroughly, that somehow a
large amount of this substance got dumped into the lagoon on air into the Grand Canal near the Rialto Bridge on Sunday morning. And it's going to
take a long time too for it to sort of dissipate. So it's not, it's here for a little bit a while to stay, Julia.
CHATTERLEY: Reef, if you would normally use a teaspoon of it, how much did it take to turn the canal green like that? I mean, that's perhaps a way to
find that person, or the people that did this is seen as buying up all that substance maybe?
NADEAU: Yes, you know, and one of the things that everyone was really quick to say that this must have been an act of climate activism. We've
seen so many of these attacks here in Rome and across the country in the last couple of months. But all of the climate activist groups have sort of
thought, no, we didn't do it.
But you know, interesting idea, because it's not toxic to turn the canal green so say the experts. And so it's just a matter of time now for it to
dissipate and flow away because trying to get rid of it would actually have to you'd have to introduce something fairly harsh into the canal and they
don't want to do that, Julia.
CHATTERLEY: Yes, just got to let it dissipate to your point. I think charcoal was put in the Trevi Fountain last weekend too so more and more
mysterious, Barbie, great to have you with us, if we get any further information on that we will clearly share it, thank you.
Now from fluorescent green to Queen Reports the talks are underway to sell the beloved rock bands entire musical catalog for at least $1 billion.
That's twice as much as the mammoth deal for Bruce Springsteen's back catalogue struck a few years ago. The source telling CNN that Universal
Music Group is in discussions to buy all of Queens decades funding output from Disney.
Queen surviving members may soon be singing we are the champions as another music industry record bites the dust. And finally, more than a century
after the Titanic sank, there are still new treasures being discovered at the wreckage site. A U.K. based mapping firm captured these images of gold
jewelry found in a digital scan, featuring the tooth of a prehistoric shark called a Megalodon.
Company officials say they are trying to identify the owner from pictures of the 2200 passengers who were on board when the ship sank back in 1912.
Footage of passengers especially their faces and clothing will be analyzed as part of the project.
It's actually very difficult to read and look at the images and I was transfixed there so my apologies for slowing down dramatically. That's it
for the show. If you've missed any of our interviews today, there will be on my Twitter and Instagram pages. Search for @jchatterleycnn. CONNECT THE
WORLD is up next and I'll see you tomorrow.