https://ahvalnews.com-Turkish President Recep Tayyip Erdoğan is gambling with the country’s ailing economy by using short-term solutions, but experts are sceptical about the Turkish leader’s efforts, which they say may not even work for his political survival, the Financial Times reported on Monday.
In December, the Turkish leader rolled out a “new economic model” in a bid to attract foreign direct investment that will bring hard currency into the country following a record-breaking collapse in the lira after the central bank, under the influence of Erdoğan, made a series of interest rate cuts.
But Turkish citizens continue to be faced with the country’s highest inflation rate in almost two-decades. Consumer prices rose by 48.69 percent annually, according to official data for January. Recent electricity and natural gas price hikes have led to protest throughout Turkey.
“Holding things steady for a campaign period might be all he needs to win,” Alp Coker, head of the Turkey desk at the London-based consultancy GPW, told FP. “Short-term solutions can work politically. It doesn’t need to work for a long time for it to translate into political success.”
Turkey’s next presidential and parliamentary polls are scheduled for June 2023 and recent polls indicate that the economy is taking a toll on Erdoğan’s approval ratings.
There are a number of key matters that must go Erdoğan’s way in order for him to keep the lira steady in the coming months, FT said, such as having an account surplus, decreased dollarization, which is keeping savings in accounts denominated in dollars, euros and precious metals, and the return of foreign investors to the country.
Expert with the Washington-based Institute of International Finance, Ugras Ulku believes that that Turkey will run a $4 billion surplus this year, as compared to the deficits of $15 billion in 2021 and $36 billion in 2020, due to limited imports and booming exports and tourism.
“We project that tourism revenues will recover fully to 2019 levels,” Ulku told FT.
Speaking on foreign investment in Turkey, GPW’s Coker said there was currently no sign of “frenzied dealmaking to buy up Turkish assets”.
Some of the recent stability in the lira is attributable to intervention by the central bank, FT times said, citing the bank’s selling of dollars and buying of lira at times of turmoil in a bid to bolster the local currency.
Despite the fact that Turkey’s headline gross reserves have shown a marked improvement in recent weeks, FT said, net reserves remain deeply negative once money borrowed through swap agreements with domestic lenders and international central banks is removed. The country’s current standing is at about minus $50 billion as of February 16, it said, citing Goldman Sachs.
“How far can they keep going with negative net reserves? Of course, it depends on the flows in the markets,” Ugur Gurses, an economics commentator and former central bank official, told FT.
“But it’s a kind of a gamble . . . If you deduct swaps and gold, they’ve got a very small amount of reserves left in their pockets,” he added.