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The protection of Turkish President Recep Tayyip Erdogan in reducing recent interest rates and declaring an “independent economic war” has sent a deep cry and left experts wondering how he is willing to give up the money.
Erdogan, who has ousted three central bank governors since mid-2019 and is a lifelong opponent of high interest rates, has insisted he will continue with a low-cost approach to promote growth and finance. Forecasters including the IMF expect domestic spending to grow by 9 percent this year – one of the fastest in the world.
But with the lira down 15 percent on Tuesday, experts warn that currency fluctuations could drastically reduce future growth. Erdogan’s approach, he says, poses a serious threat to the country’s economy and wealth – as well as the prospect of growing dissatisfaction. They see four main points of coercion.
Can most Turkish stocks be converted into dollars?
Turkish banks allow customers to make deposits in foreign currency as well as in lira. In recent years, the Turkish people have chosen to invest more in dollars and euros as rising commodity prices and lower interest rates have eroded their lira savings. Foreign exchange accounts for 55 percent of total bankruptcy in the country – about $ 260bn – compared to 49 percent in 2018.
Researchers are worried that the dollar could rise sharply, adding to the pressure of the lira and creating dizziness.
Their biggest fear is that people will lose confidence and seek to withdraw their money, which happened slowly during the last financial crisis in the summer of 2018. “My concern is from here: would you like to keep your money in the Turkish banking sector?” says Phoenix Kalen, a marketing expert at the forthcoming Société Générale.
The full run of banks, as customers lose confidence and rush to withdraw their deposits, made its final appearance in Turkey in 2001. In such cases, the government may choose to impose monetary restrictions, as a means of making it more difficult. remove hard currency, even though they have previously stated that it would not.
How do prices rise?
Rising prices are already at the forefront of Turkish politics. The annual decline in prices reached about 20 percent in October, according to the Turkish statistics agency. Rising food prices, which were more than 27 percent a year in the same month, have had a significant impact on low-income households.
Turkey’s dependence on imported goods, especially energy and equipment, means a sharp fall in currency exchange rates quickly. Jason Tuvey, of the Capital Economics Board, predicts that inflation “should rise by 25 to 30 percent in the next one or two months”.
Rising inflation exacerbates inflation and hinders growth as consumer confidence collapses. It could also disrupt humanitarian aid to Erdogan, whose ten-year rule has been a long one in terms of development. Opponents, who defeated the country’s major cities in the 2018 elections after the 2018 crisis, want early elections to be able to participate in economic growth.
The collapse of the central bank’s central bank means that its ability to intervene to protect the money is minimal. In previous years of the weakening of the lira, including 2018, Turkey finally announced an emergency interest rate that stopped the slide in the lira and reduced inflation. But, given Erdogan’s resilience to the central bank and his idea of lowering prices, some experts question whether this is a different time.
The government seems to be “tolerating the weak lira,” said Enver Erkan, an expert at Terra Investment in Istanbul, adding that it was difficult to explain how policymakers would allow themselves to fall.
Will banks still have access to foreign exchange?
Turkish banks rely heavily on foreign borrowing to repay their mortgages.
Although foreign currency remained stable even in the most difficult financial years, as in 2018, a sudden change in foreign lenders could put money at risk.
“In recent years Turkey has faced a number of challenges and we have seen banks retain opportunities,” said Huseyin Sevinc, who works for Turkish banks at Fitch. This year’s lenders have been managing their debt well from abroad, he added.
Banks “have large foreign exchange reserves to close the market for about a year,” he said, but warned that “long-term market closures could pose a significant risk.”
Will Ankara be able to pay off her debts?
During the 2018 financial crisis, the lira dropped to 18.5 percent in one day after a crisis in the US over a financial crisis, one of the biggest concerns being the potential for high debt companies in the country. repay loans in dollars and euros.
Three years ago, companies are recovering, having repaid their foreign debt by $ 74bn, according to Barclays. Instead, some foreign loans have been transferred to state-owned enterprises after the Treasury government began providing local loans with foreign currency under the auspices of former finance minister Berat Albayrak.
FX’s central government debt ratio reached 60 percent last month – up from 39 percent in 2017. This means that as the money flows it becomes more expensive for the Treasury to use its loans.
Turkey’s total debt to GDP is still low compared to its emerging market counterparts, about 40 percent of GDP. But experts say the rise in loan repayments could reduce government spending as it plans to increase spending as elections approach.
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