The Turkish lira is today rebounding from near a record low yesterday due to intervention by the country’s central bank.
By Erin Viner
Turkey‘s volatile trade in low liquidity came after the emerging market currency recorded its second-worst month ever in November, with currency plummeting to an all-time low. The Turkish lira plunged 5% to new depths against the dollar and euro on Tuesday, capping its 5th-worst month ever, after President Recep Tayyip Erdoğan repeatedly endorsed aggressive rate cuts despite widespread criticism and soaring inflation.
The Central Bank – which Erdoğan overhauled earlier this year by – said in a statement it “directly” intervened in the market “via selling transactions due to unhealthy price formations in exchange rates.”
The decline of the currency – which lost as much as 47% of its value in 2021 and fell by 30% last month alone – is rapidly eroding Turks’ earnings and savings. The sell-off was among the largest suffered by the lira, comparable with crises which the major emerging market economy faced in 2018, 2001 and 1994.
Defending his economic policies for the 5th time in less than 2 weeks during an interview with state TRT broadcaster last night, Erdoğan said there is “no turning back” from his strategy that has been deemed as reckless by most analysts. “We will see that the interest rates will fall markedly and hence there will be an improvement in exchange rates before the elections,” he vowed.
The national vote is set for no later than mid-2023. Erdoğan ‘s AK Party, which came to power in the wake of the 2001 crisis, is falling in the polls, which indicate a loss to the most likely presidential opponents. The opposition has called for an immediate policy reversal and snap elections.
“It’s a dangerous experiment Erdoğan is trying to run and the market is trying to warn him about the consequences,” said Wisconsin-based Brian Jacobsen, senior investment strategist in multi-asset solutions at Allspring Global Investments cited by Reuters, adding that, “Imports are likely to rise in price as the lira falls, making inflation worse. Foreign investment could be scared away, making it harder to finance growth. Credit default swaps are pricing in a higher risk of default – investors are getting more and more nervous. … It’s a toxic brew.”
The currency crash has sparked a disruption of medical supplies due to shrinking stocks amid a spike in import price spikes. The Turkish Pharmacists Association reported trouble in accessing 645 medicines last month, and the organization’s Chairman Nezih Barut told Reuters that the currency depreciation is “unsustainable” for importers and manufacturers.
Perhaps in a bid to improve his standing in the polls with lucrative regional deals, the divisive Erdoğan is now trying to mend deep diplomatic rifts with his nation’s neighbors.
Strained ties over regional disputes with the UAE were repaired with the visit of Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed’s visit to Ankara last week, that saw the signing of several multi-billion-dollar investments.
“Just as a step was taken between us and the United Arab Emirates, we will take similar steps with the others,” the NTV broadcaster quoted the Turkish President as saying. Indicating the reinstatement of Turkish ambassadors to both Israel and Egypt, he added, “Now when we have made our decision, we will of course be in a position to appoint ambassadors within a defined schedule,” without specifying a timeline.
Turkey also publicly backs both the Islamist Hamas terror group – an offshoot of the Muslim Brotherhood – that controls the Gaza Strip, as well as the Palestinian cause.
Onetime warm bilateral ties between the Jewish State and its strong Muslim ally were severely strained since the 2010 Mavi Marmara incident when 10 pro-Palestinian extremists from Turkey were killed after they violently attacked Israeli commandos trying to enforce the naval blockade of the Hamas-run Gaza Strip. Israel later paid Turkey $20 million in compensation as a key component of a deal signed in June 2016 to restore ties.
The rift widened again when Turkish President Recep Tayyip Erdoğan condemned Israel as a “terrorist state” in 2018 when 60 Palestinian rioters believed affiliated with the Islamist-Hamas terror group were killed by the IDF during violent protests on the Gaza border.
Israel accused Turkey of giving passports to a dozen Hamas members in Istanbul in August 2020, describing the move as “a very unfriendly step.”
At the end of last year, Erdoğan indicated Ankara’s interest in bringing ties with Jerusalem “to a better point” despite having criticized the Abraham Accords between Israel and 4 Muslim states.
While speaking to reporters after Friday prayers in Istanbul on 25 December 2020, the Turkish President revealed, “Our relations with Israel on intelligence have not ceased anyway, they are still continuing” despite having some “difficulties with the people at the top.” He nevertheless underscored that Israel’s “merciless acts” toward the Palestinians “is our red line,” and that “we differ from Israel in terms of our understanding of both justice and the territorial integrity of countries.”
A possible Jerusalem-Ankara rapprochement is being driven by the prospect of lucrative Mediterranean gas deals, in addition to simmering tensions and increasing isolation from Europe over Turkish provocations.
A visible shift in relations with Israel appeared on the horizon last month, when leaders of the two countries marked their first contact since 2013.
Israeli Prime Minister Naftali Bennett thanked Erdoğan for his “personal involvement” in freeing and Israeli couple who had been arrested on suspicion of espionage after photographing the presidential palace, and “commended the lines of communication between the two countries, which were efficient and discreet in a time of crisis.”
Local media quoted Erdogan as saying in a speech last week that continued dialogue with Israel was in Turkey’s interest.
He also reportedly called for the resumption of the Israeli-Palestinian peace talks on the basis of a Two-State solution, before going on to condemn Israeli policies toward the Palestinians “oppressive.”