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By Karin Strohecker
LONDON, May 16 (IFR) - "Shock and disbelief" - that's how global money managers reacted to an attempt by Turkish President Tayyip Erdogan to re-assure foreign investors about his economic management as the lira went into tailspin.
Fund managers who met Erdogan and his delegation in London on Monday, part of a three-day visit to Britain, were baffled about how he plans to tame rising inflation and a currency in freefall - while simultaneously seeking lower interest rates.
Some said that while Erdogan has crushed his domestic enemies, he would find taking on international financial markets with policies that defy economic orthodoxy much tougher.
A resurgent dollar, rising oil prices and a jump in borrowing costs have caused havoc across emerging markets in recent weeks. However, Turkey has been among the worst affected due to its a gaping current account deficit and growing puzzlement over who exactly holds the reins of monetary policy.
Erdogan's comments that he planned to take greater control of the economy after snap presidential and parliamentary elections next month deepened investors' worries about the central bank's ability to fight inflation, helping to send the lira to a record low on Tuesday.
Rampant inflation dogged Turkey for decades before 2000 and has been back in double digits since the start of 2017. But Erdogan has styled himself as an enemy of high interest rates, defying orthodox monetary policy that prescribes tighter credit to keep a lid on prices.
Speaking on condition of anonymity due to the political sensitivity of the meetings, investors told Reuters they were flabbergasted by his stance and willingness to go into battle with world markets at such a fragile time. FINDING ENEMIES One noted Erdogan's long list of enemies including US-based Islamic preacher Fethullah Gulen, whom he accuses of orchestrating a failed coup in 2016.
"He picks battles with everybody ... he is fighting the opposition, he is fighting Gulen, he is fighting the extremists, he is fighting after the failed coup - now he is fighting the markets, and that is dangerous," said one fund manager at a major asset management firm,
"You can find your domestic foes all you want, but when you are trying to take on a financial market, that is a battle you can't really win," said the manager whose firm attended a closed-door investor meeting with Deputy Prime Minister Mehmet Simsek.
Another portfolio manager, who attended a meeting with Erdogan, said the president had been "very honest" and clear about where he expected interest rates to go if he should win the elections on June 24.
"Erdogan...said when he (is re-elected) president, he will ensure rates will be low, not high," the portfolio manager said. "His view is that high rates lead to high inflation, I'm not sure I agree with that view."
Once a darling of emerging market investors, Turkey has seen its star fall dramatically in recent years, hit by slowing growth and concern about Erdogan's outsize influence over monetary and fiscal policy.
Having weakened five straight years already, the lira is on track for a 15 percent fall since the start of the year against the dollar - making it one of the worst performing emerging market currencies.
"He thinks the market is a bunch of speculators, and that is not his audience, his audience are ordinary people in Turkey and they need lower rates," said a third asset manager, whose firm also attended the Erdogan meeting. (Reporting by Karin Strohecker, additional reporting by Marc Jones)