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its Costa Rapti
Berat Albayrak is optimistic, for reasons only he seems to know. In a rare teleconference on Wednesday with some 2,000 investors, Turkish Finance Minister and son-in-law Tayyip Erdogan assured the resistance of his country’s banking system and the adequacy of foreign exchange reserves. What he persuaded was evident in the markets the same day: the neighbor’s currency depreciated 1.7% to 7.19 pounds per dollar. But the worst was yet to come.
The next day, the pound hit a record low, breaking the negative record for August 2018 in the previous round of currency crises triggered by Donald Trump’s sanctions against Turkey in the case of the arrested US pastor Branson. Thursday’s meeting began with the exchange rate falling for the sixth consecutive day, reaching 7.2598 pounds per dollar, down 0.8%, as Turkey’s reliability problem was reinforced by repressive measures by the authorities.
Turkish authorities have done what they know, believing that they can discipline banks, analysts and the media around the world with methods that strengthen their power at home. They have announced new regulations under which legal procedures will be initiated to punish or prohibit transactions against institutions that “participate in manipulating the financial market” through CDS, for example, or disseminate “inaccurate and misleading information.”
And things got more difficult with the decision of Turkey’s Banking Supervisory Authority to ban pound transactions at Citigroup, UBS and BNP Paribas on Thursday.
“Party” without liquid
However, the main question of the day is not answered or deleted in this way: whether Turkey has exhausted its foreign exchange reserves. For months, the central bank, politically subordinate to Tayyip Erdogan, has been “burning” billions in foreign currency to support (without other unpopular actions, such as raising interest rates or capital controls) at a rate below 7 7 per dollar.
Results are expected to drop to $ 25 billion in April, according to Bloomberg estimates. But former Treasury Department adviser Mahfi Egilmez claims on his website that, with the swaps erased, net worth is in the negative range and was $ 13.4 billion at the end of the month.
The problem is that, according to the powerful man in Ankara, the “part” of development guided by consumption and food and cheap loans must continue at all costs. Therefore, in the 13 weeks prior to April 24, there was a 60% credit expansion. At the same time, depositors are “dollarizing” as much as they can, companies are being asked to provide services in an increasingly strong foreign currency, while the depreciation rate of the pound increases in line with the depletion rate of foreign exchange reserves.
Pandemic acceleration
These are all processes with a history of at least three years, but the coronary pandemic and the accompanying restrictive measures have brought all the underlying weaknesses to their climax. The Turkish economy is taking an introverted direction as valuable sources of foreign exchange such as tourism are being lost, exports are declining and therefore the current trade deficit is widening.
As for the labor market, it is enough to take into account that the unemployment rate was already 14% in January, that is, before the coronation appeared.
Health authorities hope that the “curve” of the pandemic has been overcome, which so far has saved 131,744 cases and 3,584 deaths in Turkey, placing it in a worse position than that of all its neighbors. The national airline will resume domestic flights in June, when students will return to school. The government, for its part, insists on a policy of supporting the economy that is based much more on tax deferrals than on the necessary increase in fiscal spending.
Absence of options and … scenarios of early elections
However, the crucial question is which solution is best for the country’s financial problem. And the options offered are twofold: appeal to the IMF or conclude an agreement to open a line of credit by the United States Federal Reserve. But the first possibility has been categorically ruled out by Tayyip Erdogan himself (as someone who apparently does not forget that he came to terms with the scandal of the previous political scene amid the latest Turkish IMF program), while the second collides with his reluctance. Washington
Although the Fed already has lines of exchange with countries such as Brazil and Mexico, it treats Turkey as a different case, since, according to industry executives, cooperation presupposes a relationship of “mutual trust” and, of course, guarantees of Their independence. central bank
In other words, Erdogan is paying the price for the political suspicion his entire state has caused, including, of course, options like supplying Russian S-400 systems, but also his unorthodox economic doctrine.
In search of more outlets, Albayrak said confidential talks were in progress with more than one G-20 country to open lines of credit. These are, as he said, countries with which Turkey has free trade agreements and shows a trade deficit.
At the same time, the Turkish president seems completely absorbed in the logic of the internal political scene, believing that he can resist any external pressure while perpetuating the terms of his internal government. Only the effects of the economic crisis are affecting the unprecedented level of the referendum response, much less that of the ruling party and its nationalist allies. At least the fragmentation of the opposition space can reassure him, and even fuel scenarios for early parliamentary elections, although it is not too late.
