Anger as Turkish lira continues to plummet
Recent events are not helping, but experts say reasons for the fall are deep-rooted and have been coming for some time
ISTANBUL // In late November, a group of livestock breeders in the central Anatolian province of Aksaray were filmed setting fire to stacks of fake US$20 bills while brandishing a banner that read: “Dollars and euros not valid in our bazaar.”
Although the breeders’ anger was directed at hard currencies, it was one of the latest expressions of frustration at the sinking Turkish lira, which has lost no small amount of value against the dollar and euro in recent months, weakening consumer purchasing power and exacerbating the headaches of companies with debt in foreign currencies.
On the evening of the July 15 coup attempt, the lira sank by about 5 per cent to a little over three to the dollar – its biggest drop in eight years. Although it bounced back slightly in the following days, it has fallen further since then, standing at about 3.5 yesterday in a country still reeling from a recent deadly bomb attack and the assassination of the Russian ambassador in an Ankara gallery.
Earlier this month, president Recep Tayyip Erdogan called upon people to change their dollars into lira in an attempt to bolster the struggling currency, claiming that external forces were trying to destroy Turkey’s economy. Within hours, Turkey’s stock exchange, Borsa Istanbul, converted all of its cash assets into lira. Citizen-led campaigns also popped up, offering free haircuts or lunch for those exchanging a certain sum of dollars. But given the lira’s still dismal state, none of these efforts seem to have worked.
“With a presidential referendum coming up in four to five months, it is hard to tell what is propaganda and what is a genuinely held belief or even serious policy nowadays, which I believe is a serious concern for the business community and investors,” said Attila Yesilada, an economist at Istanbul Analytics.
“I don’t think these ‘ patriotic drives’ have much effect in a country as polarised as Turkey.”
Initially, the post-coup declaration of a state of emergency, the mass purges with arrests and capital seizures damaged investor confidence and sent the lira downwards. But it got worse in November after Donald Trump became US president-elect and the European parliament suspended EU accession talks with Turkey.
“Rather than taking steps to calm international investors, the Turkish government chose to prolong the state of emergency, fuel perceptions of a continued threat and carry out a harsh crackdown against its opponents.
“Undoubtedly, this reaction has continued to shake any confidence global markets had in Turkey,” said Cenk Sidar, president of the Washington, DCbased advisory and risk assessment firm Sidar Global Advisers.
More than 100,000 people have been sacked from the civil service, the military, judiciary and education system in the drive to cleanse the state of followers of Fethullah Gulen, the US-based cleric whom the government blames for the attempted coup. Numerous lucrative businesses thought to be run by Gulenists have been seized. “The purge morphed into a witch hunt, which reflected poorly in the international press,
‘ This reaction has continued to shake any confidence that global markets had in Turkey Cenk Sidar President, Sidar Global Advisers
and as the number of businesses taken over by the Turkish Deposit Insurance Corporation grew, investors began staying away from Turkey,” Mr Yesilada said.
In fact, the lira has been weakening for several years and for long-standing reasons that have little to do with recent events in Turkey.
“The poor performance of the lira is only one of the indicators of the Turkish economy’s major challenges. Turkey has been facing various structural problems, including, but not limited to, high unemployment, a high current-account deficit, and unsustainable dependence on foreign capital inflows,” Mr Sidar said.
The prices of imported goods – admittedly not always the most essential item – rise steeply and often. And while niche retailers may still be doing business, bigger operations saddled by debt in foreign currencies are failing, among them food producers, clothing retail chains and supermarkets.
Last year, 15,000 companies went bankrupt. This year, the number could be higher. Companies holding debt in dollars and euros are undoubtedly suffering as their lira profits are eaten up by the currency’s loss in value.
Poor foreign policy decisions, erosion of institutions, mistrust in the judicial system and a growing tilt towards authoritarianism have all contributed to the current poor performance of the lira,” Mr Sidar said.
“People are still shy to call it, but I believe Turkey is in the midst of a major economic crisis that has been evolving throughout the past five years.”