Skip to main content

Turkey's finance minister assures investors as lira slides

As Turkey’s currency neared record lows Wednesday, Turkish Treasury and Finance Minister Berat Albayrak worked to reassure investors in a rare conference call.
Turkish Treasury and Finance Minister Berat Albayrak attends a news conference in Istanbul, Turkey, April 10, 2019. REUTERS/Umit Bektas - RC1F2BCF1610

ISTANBUL — The Turkish lira fell for the fifth consecutive day Wednesday, approaching record lows last seen in the 2018 currency crisis, as the nation’s economy continues to weather the impacts of the novel coronavirus pandemic.

The lira lost 1.5% against the dollar Wednesday, slumping to 7.19 per greenback. Negative pressure persisted on the currency despite a rare conference call by Turkish Treasury and Finance Minister Berat Albayrak, in which he assured investors bank reserves were more than adequate and that state regulators would not impose capital controls.

While the pandemic has strained most emerging markets, Turkey’s economy has been particularly impacted due to concerns over state policies that have depleted central bank reserves in effort to prop up the lira in recent months.

“There is no confidence in what the authorities in Turkey are doing and that is why Turkey gets punished at the end of the day,” Wolf Piccoli, co-president and political risk analyst at Teneo Intelligence, told Al-Monitor.

Piccoli said he expects the economic downturn to persist as a slump in tourism this summer combined with a growing trade deficit would likely leave state regulators with few resources to revive the economy as the spread of the coronavirus slows.

“The way they can get out of it in the medium term is to hike interest rates,” Piccoli told Al-Monitor. “The other solution is an agreement with the [International Monetary Fund], which remains unlikely for now.”

President Recep Tayyip Erdogan has repeatedly stated he would not seek assistance from the IMF, a long-held policy by members of the ruling Justice and Development Party.

The developments come as the coronavirus pandemic continues to hit economies dependent on foreign investment, such as Turkey, where the central bank has reportedly spent millions of dollars in recent days to prop up the currency.

Such spending has diminished reserves, as Turkish regulators have sought to bolster local businesses through a mix of tax deferments and new restrictions that limit foreign currency swaps by Turkish banks.

Former Turkish economy czar and leader of the newly founded Deva Party, Ali Babacan, told Bloomberg Monday that state measures to defend the economy amid the pandemic should be more focused on stimulus programs and fiscal spending in the short term.

“If the response isn’t large and timely, the cost will probably be massive,” Babacan told Bloomberg.

Meanwhile, Turkey’s former treasury adviser Mahfi Egilmez published data on his personal website Tuesday suggesting the nation’s central bank net reserves, excluding swap lines, may have stood at a negative $13.4 billion at the end of April.

Calculations by Bloomberg also suggest Turkey’s net reserves may be in negative territory once swaps are removed after falling more than $15 billion to about $25 billion. Though the figures are unconfirmed, speculation persists over the depth of central bank resources available for regulators to mitigate ongoing pressure on the Turkish economy.

Regulators have also sought to bolster the economy by lowering borrowing costs to help companies and consumers refinance debt, encouraging banks to offer loans at more favorable rates. The measures spurred a 60% increase in lending over 13 weeks through April 24, with commercial and retail loans growing by 80% and 45%, respectively.

The impacts of such actions remain to be seen, but Eray Yucel, a professor of economics at Bilkent University in Ankara, said weaknesses in Turkey’s consumption-driven economy have been building up in recent years and are being exacerbated by the pandemic.

“The Turkish economy has taken an inward orientation, I believe, so we haven’t seen a soft landing,” Yucel told Al-Monitor. “We’ve seen many economic activities, which did not bring in foreign exchange, somehow erode reserves in proportion to GDP and other [metrics].” He added, “I believe the problems we see these days were embedded three or four years ago.”

Yet as the number of new COVID-19 cases and recorded deaths have declined in recent weeks, some positive signs have also begun to emerge for the local economy. Turkish Airlines announced Wednesday it planned to begin offering limited flights in June, while the Education Ministry signaled the nation’s schools may reopen June 1 if positive trends continue.

Turkish Health Minister Fahrettin Koca said new coronavirus infections were falling steadily Wednesday, showing promising signs the pandemic was coming under control. To date, the country has reported 131,744 confirmed cases and 3,584 virus-linked deaths.

Still, Yucel said state regulators would need to seek out long-term solutions to rehabilitate the economy with interventions beyond short-term financing.

“I don’t believe the problems will be solved in the near future,” Yucel told Al-Monitor. “Some structural provisions will be needed, as I see it … especially the structure and coordination across the government, the central bank and other regulators.”

Though reports indicate the central bank is currently in discussions to open swap lines with foreign banks, including the US Federal Reserve, Yucel said the current fiscal policies would need to be reworked for long-term financial stability.

“Swap lines require consistent policy stances on the side of Turkish policy-makers,” Yucel told Al-Monitor. “In the absence of a [sound] stance, something consistent and well-studied, I believe swap lines alone won’t be the cure.”

Join hundreds of Middle East professionals with Al-Monitor PRO.

Business and policy professionals use PRO to monitor the regional economy and improve their reports, memos and presentations. Try it for free and cancel anytime.

Already a Member? Sign in

Free

The Middle East's Best Newsletters

Join over 50,000 readers who access our journalists dedicated newsletters, covering the top political, security, business and tech issues across the region each week.
Delivered straight to your inbox.

Free

What's included:
Our Expertise

Free newsletters available:

  • The Takeaway & Week in Review
  • Middle East Minute (AM)
  • Daily Briefing (PM)
  • Business & Tech Briefing
  • Security Briefing
  • Gulf Briefing
  • Israel Briefing
  • Palestine Briefing
  • Turkey Briefing
  • Iraq Briefing
Expert

Premium Membership

Join the Middle East's most notable experts for premium memos, trend reports, live video Q&A, and intimate in-person events, each detailing exclusive insights on business and geopolitical trends shaping the region.

$25.00 / month
billed annually

Become Member Start with 1-week free trial
What's included:
Our Expertise AI-driven

Memos - premium analytical writing: actionable insights on markets and geopolitics.

Live Video Q&A - Hear from our top journalists and regional experts.

Special Events - Intimate in-person events with business & political VIPs.

Trend Reports - Deep dive analysis on market updates.

All premium Industry Newsletters - Monitor the Middle East's most important industries. Prioritize your target industries for weekly review:

  • Capital Markets & Private Equity
  • Venture Capital & Startups
  • Green Energy
  • Supply Chain
  • Sustainable Development
  • Leading Edge Technology
  • Oil & Gas
  • Real Estate & Construction
  • Banking

We also offer team plans. Please send an email to pro.support@al-monitor.com and we'll onboard your team.

Already a Member? Sign in

Turkey Briefing Turkey Briefing

Turkey Briefing

Top Turkey stories in your inbox each week

Trend Reports

Saudi Crown Prince Mohammed bin Salman (4th R) attends a meeting with Chinese President Xi Jinping (3rd L) at the Great Hall of the People in Beijing on February 22, 2019. (Photo by HOW HWEE YOUNG / POOL / AFP) (Photo credit should read HOW HWEE YOUNG/AFP via Getty Images)
Premium

From roads to routers: The future of China-Middle East connectivity

A general view shows the solar plant in Uyayna, north of Riyadh, on March 29, 2018. - On March 27, Saudi announced a deal with Japan's SoftBank to build the world's biggest solar plant. (Photo by FAYEZ NURELDINE / AFP) (Photo credit should read FAYEZ NURELDINE/AFP via Getty Images)
Premium

Regulations on Middle East renewable energy industry starting to take shape

Start your PRO membership today.

Join the Middle East's top business and policy professionals to access exclusive PRO insights today.

Join Al-Monitor PRO Start with 1-week free trial