Financial experts on Turkey: ‘Just wait about five years, then …’

Turkish President Recep Tayyip Erdoğan is opposed to an interest rate hike. Meanwhile, inflation is rising and the lira is falling in value, against the dollar as much as -22% this year. What must be done to promote the Turkish economy?

‘The Turkish lira is rapidly declining in value because foreign investors are less and less inclined to invest in Turkey. Furthermore, the decline in tourism is leading to fewer foreign currencies.

Many companies in the country have foreign debts, causing more foreign currencies to flow out of the country than enter. Moreover, they themselves exchange their Turkish liras for dollars or park their money abroad. ‘

The country can impose capital restrictions to turn the tide. Turkey may ask the International Monetary Fund (IMF) for help, but the president has several times said not wanting this.

A third option is to increase interest rates and thus limit liquidity, but given the severe recession in Turkey, that is not a serious option. ‘

Turkey refuses help from International Monetary Fund (IMF)

“Things are looking bleak for the Turkish currency and the worst is yet to come. This can ultimately lead to corporate bankruptcies. But in the long run, I am positive about the Turkish economy: in one year five the country will certainly be back on track. ‘

‘The country is seriously affected by the COVID crisis, both in terms of tourism and in terms of the sharp decline in exports to the European Union, for example. There is also a deficit in Turkey’s balance of payments and real interest rates are now negative.

Foreign investors are increasingly avoiding Turkey, which means that the lira is worth less and less. The Turkish currency has traditionally been a risky currency and is dependent on foreign investors. ‘

‘The fact that the central bank does not raise interest rates also plays a major role, of course, but Erdogan doesn’t want this. They are now trying to tighten monetary policy in other ways, for example by making credit less readily available to the local population.

The country can also buy up liras with its foreign currency reserves, but that is only possible to a certain extent. Investors are concerned about the fall in currency reserves and that is why the lira is falling. ‘

Due to the current crisis, Turkey is also facing a significant decline in tourism. For that reason, the country receives fewer foreign currencies. In addition, there is an inflation of around 12%. To keep this in check, the interest must be increased, but Erdogan wants to keep the interest as low as possible om credits accessible to keep for entrepreneurs and private individuals. ‘

‘Financial policy in the country is strongly influenced by politics. The Turkish central bank wants to raise interest rates, but the president of the country is holding back.

Whether the tide can be turned depends on whether Erdogan can be convinced to raise interest rates anyway. That is the only means that Turkey has.

Bron: DF

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