The Turkish government increased fuel prices by 10 percent on Wednesday, February 28, raising prospects of an inflation spiral following a 30-percent slump of the lira, which was floated last week. The government said it would apply immediately a 10 percent increase in the price of hydrocarbons. Other products, from bank loans to medicines, were hit by the effects of depreciation. Many private retailers raised prices in anticipation of inflation.
Newspapers reported shopkeepers preferring to sell openly in dollars instead of the local currency, with bread being sold at 10 US cents in a smart quarter of the capital, Ankara. Many experts had expected prices to rise by 20-35 percent at the end of a Muslim holiday beginning at the end of this week.
Late on Tuesday the prices of foreign cigarettes was increased by 5.2-10.0 percent by the tobacco and alcohol monopoly Tekel, following a 10-percent increase for local cigarettes and alcohol on Sunday. The increase in petrol and diesel prices is expected to feed through to consumer prices soon. The cost of a cinema ticket has already risen by 14 percent. The newspaper Cumhuriyet reported that prices for green peppers had risen by 200 percent, grenadines by 150 percent and of local bananas by 33 percent.
The depreciation of the lira affects the prices of imported goods directly and the newspaper Radikal reported that the price of mackerel had risen by 33 percent.
Many public and private banks said that they were increasing their interest rates to more than 10 percent per month. A shortage of liquidity in the banking system was at the centre of the crisis which led to abandonment last week of the peg linking the lira to the dollar. Some of these banks have announced a big increase in penalties for late loan payments. In the case of the state Halk Bank this has risen to 1,000 percent.
Many banks have also slashed the amount which customers can withdraw from cash dispensers, from 300 million to 100 million lira ($100, 109.9 euros) in the case of Akbank. Meanwhile retailers slashed prices in massive sales, outside the normal season, to move stock and raise cash. Car retailer Fiat-Tofas offered a rebate of about 15 percent, amounting to 1.5 billion lira ($1,500) on some models, if payment is made in cash.
The Milliyet newspaper said that many companies importing medicines had ceased buying abroad because of the volatility of the lira, and were refusing to supply pharmacies until the end of the holidays. The embattled government of Prime Minister Bulent Ecevit is now revising its economic targets and anti-inflation policy, likely to be announced in mid-March after the Muslim holiday starting at the weekend.
Turkish inflation, which stood at 39 percent in 2000, could hit 40 percent at the year-end, far above the government's original target of 12 percent, experts say. Ecevit signalled hope that Turkey might receive $25 billion in foreign aid, Anatolia news agency reported. Asked about speculation that Turkish officials and representatives of a consortium of foreign banks were negotiating a loan of such a size, Ecevit said: "This is our expectation, our wish." He did not elaborate.
The only concrete move by the government since the crisis erupted was to bail out a small-size troubled bank early Wednesday. Ulusal became the 12th private bank to be taken over in the past two years in Turkey's crowded and weak banking system, blamed for large part of the financial woes.
The volatile markets, meanwhile, appeared to calm down. The Istanbul stock exchange's national index gained 126 points to close at 8,792 points on Wednesday. But it was still sharply down from the 10,709 points of February 19 when a row between Ecevit and President Ahmet Necdet Sezer led to a complete breakdown of confidence in the government, just three months after a similar financial storm.
Average interest rates were 120 percent at the repo market and 100 percent at the interbank, falling abruptly from 4,000 percent amid a cash crunch last week. The Turkish lira, meanwhile, was 983,330 against the dollar, down from 689,000 last Wednesday before it was let free, representing an overall depreciation of 29.9 percent. —(AFP)
© Agence France Presse 2000
© 2001 Mena Report (www.menareport.com)