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When it comes to the number of corona cases, Turkey is not a favorite. At least if you believe the official information. Regardless of this, the crisis hit the Bosphorus country with all its might. Because tourists are missing.
In Corona times, hardly anyone spends their holidays in Istanbul or on the beaches of Izmir and Antalya. Tourism is extremely important to Turkey: it accounts for around 12 percent of total economic output.
Price collapse even before the crisis
Holidays in Turkey would be cheap at the moment. Because the Turkish lira is in free fall. It has lost 30 percent of its value against the dollar since the beginning of the year. The downward spiral is turning: the higher the losses, the greater the concern among investors. They threaten more losses.
The currency rate serves as a clinical thermometer for the state of the economy. And this has been in intensive care for years. So the price collapse started long before the crisis. Today the lira is worth one sixth of what it was worth ten years ago.
Not only tourism is affected
It’s not just tourism that has collapsed. The pandemic has also affected Turkish exports. This compounds a chronic problem facing the Turkish economy: the current account deficit. Furthermore, the crisis in the crown has melted the central bank’s reserves. All of this is putting pressure on the Turkish lira. Because the lira has a credibility problem, investors prefer stablecoins like the Swiss franc.
In this difficult economic situation, President Recep Tayyip Erdogan replaces some of his people. He fired the former head of the central bank after only about 16 months in office and replaced him with a new one. And the finance minister, Erdogan’s son-in-law, has removed his hat.
However, it is questionable whether this will change anything. Because the basic problem is not the team, but its lack of independence from Erdogan. For him, growth is paramount. Criteria such as price stability or a stable currency are secondary to him. Interest rate increases are absurd for Erdogan, he has repeatedly called himself an “enemy of interest rates”.
Central bank under political pressure
This puts enormous political pressure on the central bank. A rate hike would be a recipe against the collapse of the lira, but the president does not want to know anything about it. In July 2019, Erdogan fired then-central bank chief Knall in the case; supposedly because it didn’t cut interest rates too quickly.
November 19 is the day of truth, when the central bank decides the key interest rate. The new guardian of the coin is called Naci Agbal. As a former finance minister, he is on good terms with Erdogan. Agbal’s declaration that he would strictly base his actions on price stability helped the lira temporarily rise in rate.
However: No significant rate hike is to be expected. Because even if the individual actors who are responsible for monetary policy in Turkey are replaced from time to time: in the end, President Erdogan enforces his plans. Erdogan faces the challenge of finding a middle ground: on the one hand, he will do everything possible not to lose face, on the other hand, investor confidence in the crown crisis should not be at stake.
Annik Ott Fischer
TV business editor
