Turkish currency: always new ideas against the fall of the lira

Status: 07/05/2022 09:00

The Turkish government has been struggling with high inflation and the depreciation of its currency, the lira, for months. But instead of raising interest rates, it takes other steps. This time it concerned: corporate loans.

Author: Uwe Lueb, ARD Studio Istanbul

Turkey’s Finance Minister Nureddin Nebati is confident: Turkey will no longer suffer from high inflation soon, said in parliament recently: “We have the necessary experience and equipment to fight inflation,” said Nebati. “We are definitely continuing our fight and will bring inflation down in the short term. We are making every effort to ensure that our citizens are less affected by price increases ”.

Just don’t raise interest rates

“Maximum” is the first, but only inflation. In June, it rose year on year to its highest level in 24 years: almost 80 percent. After all, the government makes every adjustment it can think of to strengthen the Turkish lira – with the exception of the key interest rate.

First, there is the so-called “lyrization”: anyone who exchanges foreign currency for lira is guaranteed that their money will not lose value. The state pays for it. Companies are then forced to exchange some of their foreign exchange income from exports in lira. The most recent coup d’état is the regulation of lending to companies: if they still have a certain amount of foreign currency, such as US dollars, they cannot get a loan – with a few exceptions. As a result, many companies dumped foreign exchange.

Economic expert and columnist Baris Soydan calls it “magic tricks” on his YouTube channel. “Following this decision, public banks reportedly turned over a billion dollars in just a few days. So the dollar has dropped a bit, ”he explains. “Others have used it to buy dollars. It was roughly balanced after all, so the effect faded out eventually. “

Criticism of “helpless” attempts

Basically, all these attempts to support the lira are helpless, says Gizem Öztok Altinsac. – Turkey cannot cover its currency deficit. That is why we are constantly hearing about new regulations regarding the acquisition of currencies – explains the chief economist of the TÜSIAD business association. “Most of this is aimed at acquiring foreign currency from within – and preventing the demand for foreign currency. Because we don’t get fresh money from outside. “

Fresh money from outside is, for example, investments by foreign companies. But they find it difficult to invest in such an environment, explains Thilo Pahl of the German-Turkish Chamber of Commerce in Istanbul. “In the long term, the lira will remain under pressure and the constant changes in the value of the Turkish lira will continue to be a big challenge for local German companies.” In the short term, however, German companies can benefit, says Pahl. Namely, when Turkish companies liquidate their foreign exchange reserves due to new funds and buy in stock any necessary intermediate products.

Foreign exchange reserves in savings stocks

According to economic expert Soydan, all development could lead to even greater unrest for another reason: “These newest measures are particularly targeted at companies and banks.” Banks first, then companies: some wondered when it would be the turn of private individuals and they might be forced to exchange euros or dollars for Turkish lira.

Even now, some people no longer trust banks when it comes to their foreign currency – and they literally prefer to stuff money into their home under pillows. The main thing is that the state is not approaching. Because if experts, market observers and analysts are right, the latest measure regulating the granting of loans to companies is just a flash in the head. And the other foreign reserves are actually held by private individuals.

Show me your currency and we’ll talk about a loan

Uwe Lueb, ARD Istanbul, 4 July 2022 5:53 pm

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