Yildirim tries to prop up ailing lira

Analysts say the Turkish economy is floundering. Source: Pixabay

Turkey’s Prime Minister Binali Yildirim has unveiled a US$72-billion fund for domestic businesses to stimulate the economy and prop up the currency.

The Turkish lira has dropped 18 per cent against the US dollar this year and has traded at recent lows since early November. The Turkish economy has reflected the country’s political instability since the botched July 15 coup and the subsequent crackdown on all sectors of Turkish society.

The expectations of an interest-rate increase by the US Federal Reserve before the end of year, have compounded Turkey’s financial problems.

Ankara has insisted for months that the economy remained stable and secure, despite economists’ claims that it was struggling.

In an attempt to boost demand for the lira, President Recep Tayyip Erdogan earlier this month called on government ministries, corporations and the masses to demonstrate their patriotism by converting foreign currency reserves into lira or gold. Erdogan had turned his personal savings into lira, his spokesman claimed.

The Ministry of Defence and the Borsa Istanbul stock exchange said they were changing their assets into lira. The Turkish Privatisation Administration said it would only accept payments, privatisation tenders and letters of guarantee in lira. The Energy Markets Regulation Authority said it would now only use the flagging currency.

Independent traders have been offering free food and services to anyone trading foreign currency for lira.

Yildirim’s fresh stimulus for employers and promising relief for workers are the latest attempt by Ankara to defy the pressure of the market.

He said the government would extend credit of about US$72 billion to businesses to help them ease their woes.

Travel by government staff would be cut and new vehicle purchases cancelled, the premier said. Tax rates would be kept steady next year, and there would be government help to boost employment.

All public institutions’ contracts would now have to be in lira and, if possible, existing deals would also be converted into the floundering currency. Yildirim said the move could save the authorities around US$10 billion.

“We are aware of real sector problems and will continue to stand by all parts,” Yildrim said.

Inan Demir, an analyst at Nomura PLC in London, was unimpressed.

“Contrary to market expectations for measures to address currency weakness, the package was mostly about credit growth,” Demir said. “In our view, the authorities’ response to the exchange rate developments have been underwhelming.”