Turkey is a nation transfixed by digital currency rate boards. As the Turkish lira continued its accelerated slide against the dollar, currency traders at the open-outcry exchange outside the Grand Bazaar in Istanbul paused business today. Economists warn of a full-blown currency crunch, yet the Central Bank has barely blinked. In what some analysts shrugged off as too little, too late, the Central Bank sharply increased one of its primary lending rates — the late liquidity window — from 13.5% to 16.5%. The lira briefly rallied, rising to 4.59 against the dollar, only to tumble anew to 4.67. It remains unclear whether President Recep Tayyip Erdogan, who clings to the unusual theory that raising interest rates will increase inflation, gave his blessing to the rate hike or not.
The lira has been in free fall ever since Erdogan's May 14 interview with Bloomberg Television. “Of course our Central Bank is independent,” he said. “But the Central Bank can’t take this independence and set aside signals given by the president.” The lira hasn’t stopped falling ever since, adding pressure to a bulging current account deficit and dollar-denominated corporate debt. Erdogan’s unremitting assault on democratic checks and balances twinned with the US Federal Reserve’s rate hikes haven’t helped.
Garo Paylan, a lawmaker for the opposition Peoples’ Democratic Party, summed up the situation in an acerbic tweet: “The dollar has hit five Turkish liras, the flames have engulfed the chimney stack. There is a fire. But the fire brigade is saying 'we’ll intervene when appropriate.'”
The former businessman was alluding to comments by Economy Minister Nihat Zeybekci, who asserted, “Our relevant institutions possess the authority and instruments to ensure that the success of the real sector and the toil of the working class don’t go to waste. … Our confidence is absolute that they will assume responsibility and take the right steps at the appropriate time.”
All eyes are on a planned June 7 meeting of the Central Bank to debate monetary policy.
Dani Rodrik, an economist at Harvard Kennedy School, offered some advice via Twitter: “You can only halt the Turkish lira’s free fall in three ways. 1. The Central Bank sells off its dollar reserves at the risk of exhausting them. 2. Does a radical rate hike. 3. Opts for capital controls. Pick your poison.”
Hopes that reason might prevail will have been dampened by government spokesman Bekir Bozdag’s assertions that the lira’s troubles were triggered by a foreign plot to hurt Erdogan in the run-up to next month’s presidential and parliamentary polls. “The people have detected the game and the player. The people have seen the puppet and the puppeteers. They will not yield to them,” he declared.
Tell that to a farmer in the eastern province of Malatya identified in the press as Metin C. He tried to self-immolate outside a local branch of the state-run Ziraat Bank when managers refused to postpone his debt repayments. “I asked you to give me time until the apricot harvest, but you refused,” the frantic man cried as he emptied a canister of gasoline over himself. He was ultimately calmed by security officers and the gathering crowd.
Still, recent surveys indicate that a sizable chunk of the population, including supporters of the main opposition Republican People’s Party (CHP), subscribe to the conspiracy theories being peddled by the government. According to one poll cited by the pro-opposition daily Sozcu, 42% of respondents believe the collapse of the national currency was orchestrated by foreign powers. While more than half of them were pro-Erdogan, a full fifth said they voted for the CHP. Just what this bodes for the election is anybody’s guess.
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