Turkey’s lira undefended as Erdoğan ignores investors

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Turkish President Recep Tayyip Erdoğan’s government is ignoring the international investment community as it seeks to grow the economy in excess of 8 percent per year, said Atilla Yeşilada, partner in Istanbul-based GlobalSource Partners, and Mark Bentley, former bureau chief for Bloomberg in Turkey.

Yeşilada said the Turkish central bank now lacks credibility concerning monetary policy because it has to seek the permission of Erdoğan before raising interest rates.

“Turkey’s current economic conditions would demand immediate interest rate increases,” Yeşilada told Ahval TV on Thursday. “Investors are worried that the lira is completely undefended.”

Erdoğan’s government is seeking to grow the economy ahead of presidential and parliamentary elections next year. The lira has sunk to record lows against the dollar and euro on concern that Turkey’s economic imbalances, which include double-digit inflation and a widening current account deficit, are unsustainable. The lira recovered some losses, trading at 4.11 per dollar on Thursday compared with a record low of 4.16 per dollar on Wednesday.

“The central bank is behind the curve, bank loan rates are going up towards 20 percent,” said Bentley, who contributes a weekly column on the Turkish economy to Ahval. The government is trying to boost growth as fast as it possibly can, pushing inflation higher and the current account deficit wider, creating huge concern from the investment community that the economy is overheating, he said.

Yeşilada said consumer confidence is likely to slump should the lira continue to slide. Furthermore, the unhedged foreign debt of Turkish companies is destroying profitability. The leverage Turkey has accumulated and “could snowball and double-down on us,” he said.

Bentley said Turkish companies are seeking to restructure debts at longer term and preferential rates of interest. It is open to question how small and medium-sized companies are fairing as the lira weakens and the extent of the problem at these companies is unknown, he said.



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