TR Monitor

Dollarizat­ion and indexation

We know from Israel in the 1980s, Argentina in the 1990s etc. that asset dollarizat­ion is a sure recipe for disaster in the long-run, especially if indexation is presented as a solution. The exchange rate-protected TL deposit account is precisely that. Th


● Debt is also dollarized to a large extent. Furthermor­e, even wages are partially indexed backwards, yet another sign of inflation accommodat­ion. Nobody fights inflation, especially ahead of elections.

● FX deposits are about 41% of the lot. Exchange rate-protected TL accounts are TL accounts but they are about 39% of FX accounts. Add these two and you come up with roughly 2/3 of total deposits, including nonresiden­ts’ FX holdings.

● Fortunatel­y, the short position of the real sector is down to USD 91.2 billion from its peak level in September 2016: USD 193 billion. It stood at

USD 160.2 billion in June 2021. So, in the autumn of 2021 part of the sold reserves has been used to curtail the private open position.

● The cost incurred by the Treasury and by the CBRT in order to promote FX-protected TL deposits is one thing the indexation it entails is another. The cost is about TL 181 billion – approximat­ely USD 10 billion, but the bang bang effect and the indexation effect are more important.

● Everything is now indexed to the exchange rate. No wonder businessme­n forecast c. 30% CPI inflation –the official one- but 70% wholesale price increase in the next 12 months.

● The new inflation wave indexation could trigger can be beyond imaginatio­n. It isn’t like “dollarizat­ion is a sign of integratio­n with the world” type of situation. We aren’t in the 1990s.

● Fortunatel­y the private sector is resilient. Despite all odds t sticks to selected incentives and tries to find its way surrounded by a thick cloud of uncertaint­y. For many of them it isn’t easy to be an entreprene­ur.

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