New Plan to Rescue Turkey's Deteriorating Economy

Published August 13th, 2018 - 07:24 GMT
Turkey Finance Minister, Berat Albayrak. (AFP)
Turkey Finance Minister, Berat Albayrak. (AFP)

Turkey has drafted an action plan and its institutions will start taking necessary steps Monday to ease financial markets’ concerns, Finance Minister Berat Albayrak said Sunday, after the lira plunged last week.

In an interview with Hurriyet newspaper, Albayrak said a plan has been prepared for banks and the real economy sector, including small to midsized businesses that are the most affected by the foreign exchange fluctuations.

“From Monday morning onward our institutions will take the necessary steps and will share the announcements with the market,” Albayrak said. “All our action plan and measures are ready,” he said, but did not provide details on what those steps would be.

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On the brink of a full-blown currency crisis, Turkey’s lira plunged to a record low Friday, tumbling as much as 18 percent in its biggest daily drop since 2001.

“This is the sign of a clear attack, a challenge,” Albayrak said.

Earlier Sunday, Turkish President Recep Tayyip Erdogan stood by his opposition to high interest rates despite the sharp falls in the currency, saying the lira’s weakness did not reflect the country’s economic realities. The lira has lost about 40 percent of its value this year, largely over worries about Erdogan’s influence over the economy, his repeated calls for lower interest rates in the face of high inflation, and worsening ties with the U.S.

Erdogan, who has called himself the “enemy of interest rates,” wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing. His comments on interest rates – and his recent appointment of his son-in-law as finance minister – have heightened perceptions that the central bank is not independent.

He said Sunday the lira’s fall was the result of a plot and did not reflect Turkey’s economic fundamentals. Erdogan’s remarks also knocked back investors’ expectations of a rate hike from the central bank.

The central bank raised interest rates to support the lira in an emergency move in May, but it did not tighten monetary policy at its last meeting.

Erdogan repeated his call for Turks to sell dollars and buy lira to shore up the currency, while telling business owners not to stock up on dollars.

“I am specifically addressing our manufacturers: Do not rush to the banks to buy dollars. Do not take a stance saying ‘We are bankrupt, we are done, we should guarantee ourselves.’ If you do that, that would be wrong. You should know that to keep this nation standing is ... also the manufacturers’ duty.”

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