The re-election on Sunday of Recep Tayyip Erdogan as president of Turkey marks a path of continuity for Turkish politics, but at the same time predicts serious economic turmoil, according to analysts consulted by EFE.
“I don’t expect a shock reaction right away. The uncertainty is over and now (the markets) will position themselves accordingly. But with the continuation of the previous policies, the lira will continue to lose value,” economist Mustafa Sönmez told EFE.
The first reaction of the lira came on Sunday night, with a drop of 0.7% against the dollar, until marking 20.1 units per dollar, compared to the usual 19.9 during the last week.
As in similar movements in the last week, the lira recovered the losses immediately, but during the morning it returned to the bearish path and for the first time it seems to settle today permanently at the level of 20 units per dollar, equivalent to 21.5 liras per euro.
The change of the lira against the dollar is artificially supported by the Central Bank, which sells currencies to stabilize the currency every time a loss is observed in the marketsaccording to all the economists consulted.
The Bank itself already admitted in 2021 “a direct intervention in the markets through sales due to the unhealthy evolution of currency exchanges”, and this practice seems to continue, but analysts wonder how long it can be sustained.
Last week, the net reserves of the Central Bank reached negative values for the first time since 2002after losing 25,000 million dollars in two monthsreports the Turkish business press.
The bleeding of the reserves is due to various mechanisms established to ensure the stability of the currency, such as a savings account scheme that the Government launched in December 2022, offering high profitability for fixed deposits and, in addition, a guaranteed value commensurate with to the dollar exchange.
This is essentially covering losses with taxpayers’ money, denounced Mustafa Sönmez, who estimated this Monday the value of these deposits at about 2.5 trillion liras (about 125 billion dollars), predicting serious headaches for banks , who must pay interest rates of up to 35%.
The economist Bilge Yilmaz, financial adviser to the opposition party IYI, pointed out a few weeks ago that there are 110 billion dollars in this scheme and assured that these accounts will have to be gradually closed to clean up the economy.
But this consolidation will necessarily require a drastic rise in interest rates, currently at 8.5%, at the express indication of Erdogan, while year-on-year inflation exceeds 40%.
Raising rates will encourage savings and stabilize the currency, but it will also curb consumption and, with it, production and employment, a worrying prospect for the Turkish working class that Erdogan has wanted to avoid before the elections.
Logic indicates that once the elections have been won, the time has come to apply painful measures, but on election night itself, Erdogan told his followers the following objective: to recover the mayoralty of Istanbul in the municipal elections next March, which his party , the Islamist AKP, lost in 2019.
It may try to maintain until then the current dynamic of promoting spending, consumption and employment, but it is doubtful that the reserves of the Central Bank will allow it.
“The question that international investors ask me is: ‘How long will Turkey’s currencies hold out?’” Turkish economist Atilla Yesilada wrote this week, predicting that the Central Bank may soon be forced to limit the free exchange of currencies.
Mechanisms of this type already exist, the businessman and analyst Emre Deliveli recalled in a conversation with EFE: any businessman who collects in foreign currency, whether as an exporter or in the tourism sector, is obliged to transfer 40% of this income to the Central Bank, obtaining lire in exchange
But these kinds of limitations could now be made official and general, Yesilada fears, forecasting turbulent times.
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