The two major market horror stories in 2018 were Turkey and Argentina, with both economies sputtering toward recession and on the verge of currency crises.
The big picture: The two countries' policies to address the crises have played out like a strip from Goofus and Gallant, except that Goofus has emphatically triumphed.
Background: Investors have long urged countries to fight economic instability and currency falls by increasing interest rates, assuring central bank independence and relying on the IMF and international organizations for goodwill loans.
On one side: On Aug. 29, Argentina as Gallant asked the IMF to speed up payments of the $50 billion bailout package it had agreed to with the country. On the same day, its central bank, led by technocrat Nicolas Dujovne, raised benchmark interest rates to a stupefying 60%. (Interest rates had been as low as 22.75% just 4 months earlier.)
- The Argentine peso fell that day to nearly 40 pesos per dollar, its lowest level on record and has not bounced back.
On the other side: Turkey as Goofus has defied economic experts and raised its interest rates only once since the lira fell to the weakest level in its history. The country hiked rates 6.25% to bring its policy rate to 24%.
- President Recep Tayyip Erdogan replaced the country's market-favored economic team when he won re-election in July. His loyalists, including a handpicked central bank head and his son-in-law, the finance and treasury minister (previously two separate positions), continue to oversee economic policy, rejecting calls for IMF intervention.
The results: The lira has strengthened more than 20% from its Aug. 28 level. Argentina's peso has fallen more than 15%.
- Turkey's annual inflation rate also has fallen, topping out in October at 25%, while Argentina's climbed to 47% in December.
The bottom line: "I'm puzzled because I don’t think anything has really changed in Turkey," Win Thin, head of global currency strategy at Brown Brothers Harriman, tells Axios. "Part of it I think is just that quest for yield, though I'm not sure why people would pick Turkey over Argentina. It's frustrating if you're following fundamentals."
Go deeper: The meltdown of emerging market currencies