Title: The Challenges of Stabilizing Turkey’s Struggling Economy
Introduction:
The new central bank governor of Turkey is expected to double interest rates in an effort to stabilize the country’s struggling economy. Hafize Gaye Erkan, who is leading the central bank for the first time, is set to raise the main interest rate from 8.5% to 17% at the upcoming monetary policy committee meeting. This decision comes as Turkey’s foreign currency reserves have been depleted by unorthodox policies and billions of dollars spent to support the lira ahead of the May elections. However, achieving stability will require more than just raising interest rates and the new financial team, led by Erkan and Finance Minister Mehmet Şimşek, will face significant challenges.
The Need for Economic Stabilization:
Turkey’s economy, valued at $900 billion, is on the verge of a crisis and urgent measures are needed to prevent further deterioration. Executives and analysts predict that the lira will plunge by an additional 17% over the next 12 months, compounding the 64% fall it has already experienced in 2021. To address this, Erkan and Şimşek must implement policies that will lead to a sustainable economic trajectory. This includes raising borrowing costs and allowing for further depreciation of the pound.
Unorthodox Policies and Imbalances:
Under President Recep Tayyip Erdoğan’s leadership, Turkey has pursued unorthodox economic policies that have created imbalances and deterred foreign capital. These policies have focused on keeping borrowing costs low despite high inflation rates and defending the lira. To stimulate the economy, Erdoğan has resorted to unconventional measures such as distributing free gasoline and raising the minimum wage. These actions, coupled with interventions to support the lira, have contributed to the depletion of foreign currency reserves.
Overvalued Lira and Widening Trade Deficit:
The overvaluation of the lira and the overheated domestic economy have contributed to Turkey’s widening trade deficit. The country’s current account deficit reached a record high of $29.7 billion in the year up to April. The deficit was largely financed by the central bank’s foreign exchange reserves, which have been extensively depleted. Foreign purchases of gold by locals as a hedge against further currency declines have also fueled the trade deficit.
The Importance of Rebuilding Foreign Currency Reserves:
Turkey’s current foreign currency reserves stand at $99.8 billion. However, this figure does not include the amounts owed by the central bank to locals and foreigners. Net foreign assets, a crucial indicator of foreign exchange reserves, are in a negative position, indicating that reserves are dangerously low. Efforts to rebuild foreign currency reserves are critical for the stability of Turkey’s economy.
The Challenges Ahead:
To stabilize the economy, a series of consecutive actions will be necessary. These actions include a significant adjustment to the exchange rate, as well as policy tightening to slow domestic demand and reduce the current account deficit. The timing and order of these policy measures are crucial to achieve the desired outcomes.
Additional Piece:
Title: Navigating the Path to Economic Stability in Turkey
Introduction:
Turkey’s economic challenges require a comprehensive approach that goes beyond raising interest rates and addressing the currency crisis. The government must tackle structural issues, restore investor confidence, and implement sustainable policies to revive the struggling economy. While the central bank’s decision to raise interest rates is a step in the right direction, it is just the beginning of a long and difficult journey.
Structural Reforms and Investor Confidence:
To attract foreign investment, Turkey needs to implement structural reforms that enhance transparency, strengthen the rule of law, and address concerns about the independence of institutions. This includes reforming the legal system, improving corporate governance practices, and ensuring fair competition. Restoring investor confidence is crucial for creating a stable economic environment and encouraging long-term investments.
Addressing the Current Account Deficit:
One of the key challenges facing Turkey is the widening current account deficit. To address this, the government must focus on reducing imports and promoting exports. This can be achieved through initiatives such as diversifying export markets, increasing competitiveness, and supporting industries with high export potential. Additionally, measures should be taken to reduce the reliance on foreign debt and attract sustainable sources of finance.
Balancing Fiscal Policies:
To stabilize the economy, fiscal policies must also be carefully managed. The government should strike a balance between stimulating economic growth and ensuring fiscal discipline. This includes implementing policies that promote investment and job creation, while also prioritizing fiscal sustainability. Rationalizing public spending and reducing the budget deficit will be critical in achieving this balance.
Supporting Small and Medium-sized Enterprises (SMEs):
SMEs play a vital role in Turkey’s economy, accounting for a significant portion of employment and economic output. To support SMEs, the government should provide targeted incentives, access to finance, and simplified procedures for starting and operating businesses. Encouraging entrepreneurship and innovation will drive economic growth and create sustainable job opportunities.
Conclusion:
The road to economic stability in Turkey is challenging, but not impossible. The new financial team, led by Hafize Gaye Erkan and Mehmet Şimşek, must adopt a holistic approach that encompasses structural reforms, investor confidence, and a balanced fiscal policy. By addressing these issues and implementing sustainable policies, Turkey can overcome its economic challenges and position itself for long-term growth. It is crucial for the government to act promptly and decisively to restore stability and build a resilient economy for the future.
—————————————————-
| Article | Link |
|---|---|
| UK Artful Impressions | Premiere Etsy Store |
| Sponsored Content | View |
| 90’s Rock Band Review | View |
| Ted Lasso’s MacBook Guide | View |
| Nature’s Secret to More Energy | View |
| Ancient Recipe for Weight Loss | View |
| MacBook Air i3 vs i5 | View |
| You Need a VPN in 2023 – Liberty Shield | View |
Turkey’s new central bank governor is expected to double interest rates next week as the country’s new financial team tries to stabilize the struggling economy.
Business executives and analysts expect Turkey’s main interest rate to be raised to 17% from 8.5% at the monetary policy committee meeting next week, with Hafize Gaye Erkan at the helm for the first time, according to a central bank survey released on Friday. .
Steering Turkey onto a sustainable economic trajectory will require a sharp rise in borrowing costs and further depreciation of the pound, as the country’s foreign currency war chest is “dangerously” depleted by unorthodox policies and at least 23 billions of dollars used to support the lira ahead of the May elections.
Financial Leadership written by Recep Tayyip Erdoğan since his re-election last monthErkan-led and recently appointed Finance Minister Mehmet Şimşek faces growing challenges as he seeks to pull the $900 billion economy from the brink.
According to the survey, analysts and leaders also expect the lira to plunge another 17% over the next 12 months, having already fallen 64% since then in 2021, as the government eases its efforts to slow his fall.
“[A turnround would] not easy to achieve since recent economic policies have created significant anomalies,” said a senior analyst at the Turkish branch of an international financial group. “Even if they want to return to orthodox policies, these steps can create side effects.”
Erdoğan’s flagship economic program, focused on keeping borrowing costs low despite acute inflation and defending the lira, has caused serious imbalances and scared away foreign capital.
The use of unconventional tools accelerated ahead of the election as Erdoğan deployed government resources to stimulate the economy, including handing out free gasoline and raising the minimum wage. Some $23 billion was also spent supporting the lira between the start of 2023 and May’s run-off elections, according to calculations by economist Haluk Bürümcekci, which exclude other interventions aimed at mitigating the fall in the lira. currency in recent years.
Erich Arispe, the principal analyst responsible for the Turkish government’s credit rating at Fitch Ratings, said: “The accumulation of distortions and the increase in vulnerabilities following the electoral stimulus may require at least a tactical change in terms of of economic policy. direction.”
Erdoğan said this week that if he did not change his mind about the unorthodox view that high interest rates cause rather than cure inflation, he would allow Erkan and Şimşek to take measures to bring inflation down to single digits from the current level of close to 40%. .
Şimşek, a former deputy prime minister well regarded by foreign investors who has pledged to restore “rational” policies in Turkey, has yet to release specific policy details. But analysts say the pound’s 16% fall against the dollar to new record lows since the May 28 vote was a sign that Turkey has started to intervene less aggressively in the foreign exchange market.
He said his priorities include reducing the country’s gaping current account deficit, which was caused largely because imports of goods far exceed exports. The deficit was $29.7 billion in the year to April, the highest level on record.
The overvalued lira and an overheated domestic economy are partly to blame. Foreign purchases of gold by locals fearing further currency declines fueled the widening trade deficit.
The current account deficit was largely financed by the central bank’s foreign exchange reserves. Reserves had also been spent defending the lira, a policy that was “not sustainable”, said Clemens Grafe, an economist at Goldman Sachs.
Turkey’s official reserve assets stand at $99.8 billion, including $50.3 billion in foreign currency and $42 billion in gold, according to central bank data. But this does not include the amounts the central bank owes locals and foreigners.
Net foreign assets, an indicator of foreign exchange reserves closely watched by investors, were minus $15.9 billion, a figure that would be even lower were it not for tens of billions of dollars in funds borrowed from the system. local bank and to foreign central banks via tools called “swaps”.
Turkey’s net foreign assets are in an even worse position than after the Turkish banking crisis of 2000-01, during which the lira collapsed and interest rates soared, according to data from the central bank. “Current levels are dangerously low and this requires efforts to rebuild foreign currency reserves,” said Christian Wietoska, a Deutsche Bank strategist.
Economists expect several successive actions will be needed to begin to turn the economy around. “Stabilizing the economy will require a significant, and we believe discontinuous, adjustment to the exchange rate,” Grafe said, adding that “significant policy tightening to slow domestic demand” was also needed to reduce the deficit. from the current account.
“We can talk about personalities, backgrounds, signals and speculations about what [the new team] can do. But what is really important is the timing and order of policy measures. . . because there are so many moving parts in this fit,” said Arispe of Fitch.
https://www.ft.com/content/f1864ccc-18cf-4d98-9eb6-104c5839de2c
—————————————————-