When the Turkish lira fell to a new low against the dollar and euro this month, Hakan Bulgurlu did not panic. This was not the first time that Mr Bulgurlu, the CEO of Arcelik, a Turkish manufacturer of household appliances, was sent through a currency crisis.
“We do business in Pakistan, in Bangladesh, in India, in Turkey, in South Africa,” said Mr Bulgurlu, 48, who holds an MBA from Northwestern University. ‘You’re hardened. You learn how to deal with crises. ”
But for Turkey, the currency crisis, the second in less than two years, combined with the pandemic, offers an increased risk of economic collapse.
Economists predict a sharp decline after the fall of the lira lifted the specter of another round of rising prices for imported goods such as medicines and fuel. International investors are worried about the financial maneuvering and flooding of cheap credit that President Recep Tayyip Erdogan has used to boost the lira and drive economic growth.
As a matter of policy, Arcelik, which has 32,000 workers, half of them in Turkey, had already bought protection in financial markets that protected the company from turbulence in foreign currency. It was one of the ways in which Mr Bulgurlu and other members of Turkey’s abused business class have adapted to the country’s volatile economy. And it helps explain why Mr Bulgurlu believes that Turkey will overcome disasters, just as in the past.
“I am a believer in Turkey,” he said in an interview. “Turkey always seems to get these things through the edge of the knife.”
Turkey’s economic fate has geopolitical ramifications. Recently, Turkish armies have behaved aggressively in the Mediterranean towards France and Greece, which are NATO allies. Analysts see the confrontations as an attempt by Mr Erdogan to arouse nationalist sentiment and distract Turks from their money problems. His grip on power was shaken last year after his party lost control of the municipal government in Istanbul.
The sharp devaluation of the lira, which lost 7 percent of its value in August, has already led to higher food prices and other basic, resentful resentments.
“Everything is unbelievably expensive,” said Derya, a 41-year-old math teacher who did not want to give her last name because she is a government employee. She said she mixed more onions into her meatballs to keep them going. Because of the decline in the lira, she said when shopping at an Istanbul market, “we have become poorer.”
Mr Bulgurlu states that Turkey still has underlying strengths, such as a strong work ethic and a young consumer population. The future of Turkey, and its role in the Western alliance, may depend on whether Mr Bulgurlu’s belief in the country’s resilience is justified.
Arcelik is symbolic of the rapid economic development that Turks have enjoyed until recently. From 2000 to 2013, average incomes more than tripled, poverty fell by half and Turkey entered the ranks of middle-income countries. But economic output per capita has slipped back to 2010 levels, according to World Bank data.
Founded in 1955, Arcelik flourished by supplying washing machines, refrigerators, televisions and other appliances to the growing middle class of Turkey. It also expanded abroad, proving that Turkish companies can compete all over the world.
Arcelik is the second largest manufacturer of home appliances by market share after German electronics giant Bosch. It rejuvenated Grundig, a classic German label that passed into Turkish hands after bankruptcy in the early 2000s. Internationally, Arcelik is probably best known for its Beko brand.
Mr Bulgurlu became chief executive officer in 2015 after holding a number of management positions at the company, including head of sales in Asia. He tried to position Arcelik as a technology innovator with a social conscience. The company has invested heavily to reduce the energy consumption of its appliances, he said, and invented technology for washing machines that filter plastics through synthetic textiles so they do not end up in the oceans.
When the pandemic hit, Arcelik adjusted its production company to 5,000 fans, who donated the company to countries that could not afford the life-saving equipment. Arcelik also provided ventilators for field hospitals in refugee camps along the Turkish border with Syria.
Arcelik’s sales have held up relatively well in the pandemic in part, as hanging out at home has asked many people to improve their devices. However, the company reported a 7 percent drop in revenue from April to June, to 7.8 billion lira as $ 1.1 billion. Sales have begun to recover in Western Europe and some other markets.
“We are working at full capacity and having trouble meeting the demand,” said Mr. Bulgurlu.
During currency crises, Turks could have been comforted that a devalued lira brought some benefits, such as an influx of bargain-hunting tourists.
But that storage no longer applies in the pandemic. On the Mediterranean coast of Turkey, which is popular with European and Russian holidaymakers, many hotels did not open at all and most of them were at least half empty during the peak beach season, said Ahmet Akbalik, owner of the Ela Quality Hotel in ‘ the resort town of Antalya.
“Everyone considers this year lost and has his eyes on 2021,” said Mr. Akbalik by phone.
In theory, a weaker lyre makes Turkish goods abroad cheaper and more competitive, and helps manufacturers like Arcelik. But that advantage only works if the foreign customers are still buying.
Muhittin Tokus, 55, previously employed more than 100 people, including his four sons, at a factory in Istanbul that made swimsuits for larger manufacturers. But sales evaporated due to the pandemic, and the company went bankrupt. All that was left of the company was a market stand hired by Mr. Tokus in the Istanbul market to sell surplus inventory.
He said he had recently seized about 2,000 lira, or about $ 270. “It’s all because of the pandemic,” Mr Tokus said.
For Arcelik, all the cost benefits of a weaker lira are offset by the reduced purchasing power of consumers in Turkey, which remains a major market. “As a nation we are getting poorer,” Mr Bulgurlu said.
Mr Bulgurlu, who went to the college in Texas next to the Northwest, said he was supported by Mr Erdogan’s government and the Turkish central bank to curb the decline of the lira. It traded as low as 7.4 to the dollar this month, down from 5.9 to the dollar at the beginning of the year. The lira rose after Mr Erdogan announced last week that Turkey had discovered a major gas field in the Black Sea, but the rally was short-lived.
The government has pressured banks to lend more, to help boost consumer spending but also to feed inflation, which is at an annual rate of almost 12 percent. The declining purchasing power of the lira is one reason it has lost value against other currencies. In addition, many foreign investors lost confidence in Turkey during the last crisis, in 2018, which means that there is not much demand for lira assets.
The central bank has tried to intervene by buying lira in currency markets, but it is running on dollars to do so, analysts say. Economists say the central bank has begun borrowing dollars deposited in businesses and residents in Turkish banks, a strategy that is likely to end badly.
“This is a train wreck in slow motion,” said Ugur Gurses, a former central banker who writes about the Turkish economy.
The central bank has so far refused to increase its reference rate. That would be the standard remedy for a falling currency, but would run counter to Mr Erdogan’s unorthodox view that high interest rates cause inflation. The current official rate of 8.25 percent, which left the bank unchanged at its meeting last week, is effectively negative because it is below the rate of inflation.
Burned by crises in the past, many Turkish companies have backed down one risky practice that was once rampant: borrowing in foreign currencies. Loans denominated in dollars or euros come with lower interest rates, but they can be devastating for a company that earns its income in lira. The more the lira depreciates, the more expensive the loan in foreign currency is repaid.
Foreign currency loans still account for 40 percent of all loans, according to official data, and remain a threat to the solvency of Turkish companies.
About half of Arcelik’s debt is owed in dollars, usually a red flag. But Mr Bulgurlu said the company had enough revenue in euros, a currency that gained in value against the dollar, to cover its dollar debts. It hooks the rest.
“We love everything. We do not take currency risk, ‘he said. ‘That is a principle we have long adopted. It helps our management to simply focus on our business and not worry about what is happening in the currency markets. ”
Carlotta Gall contributed reporting.
