Fix exchange rate for imports
Asked what could be done when the TRY had started its free drop a few months back, Mustafa Besim told the Financial Mirror that “there are thoughts of fixing an exchange rate for imports for a period of time. This way all transactions like import tax and transfer deals in real estate could be made with a fixed exchange rate. However, as Turkish Cypriots do not have the ability to form their own monetary policy, there is not much that could be done towards solving the problem”.
Contributing to the discussion, Dr Erol Kaymak, professor at the department of Political Sciences of the Eastern Mediterranean University in Famagusta, said that the coalition does not have a magic wand and that it has basically remained silent during the crisis.
He said that they do not have ways of protecting themselves from the crisis which was imported from Turkey as they do not have a currency, nor a central bank of their own.
“We are indebted to Turkey and thus we cannot take decisions like imposing austerity measures on our own”, he said.
Dr Kaymak predicted that the ruling coalition will have to ask for a supplementary budget from Turkey before the end of the year as he predicted that with the collapse of the TRY, the budget will not be sufficient.
From an economist’s point of view, Ioannis Tirkides, Head of Research at the Bank of Cyprus, explained that the Turkish Cypriot economy operates to a significant extent on foreign currencies which mitigates partially the impact.
“The banking system is small with a significant part of assets and liabilities in foreign currencies. To the extent to which foreign currency liabilities (deposits), fund foreign currency assets (loans) not loans in Turkish lira, the currency risk in the banking system is small.”
Tirkides said that the crisis will encourage the further use of foreign currencies in the north. But Turkish Cypriots cannot abolish the Turkish lira in the north altogether.
“The fundamental question regarding these developments is the longer-run prospect of Turkey in terms of its relations with the West. The exposure of European banks to Turkey’s external debt will damage their profitability but will not cause major problems. A break of Turkey with the West will have more reaching implications. For us in Cyprus, an unstable Turkey with an aggressive foreign policy agenda that extends to our [energy] EEZ is a cause of concern and careful planning,” making the solution of the Cyprus problem “all the more difficult, if not impossible.”