The Turkish economy adrift

The new governor of the Central Bank of Turkey, Naci Agbal, has made his first public appearance to try to calm down the mood of investors, who are concerned about the direction of the country's economy. The inflation the country is facing and the loss of national reserves, together with actions such as the sale of 10% of the Istanbul Stock Exchange to Qatar, reflect the need for a review of monetary policy to strengthen the situation of the lira. Continuity, Agbal stresses, is not a solution.

The instability at the head of the Central Bank, with several governors removed by Recep Tayyip Erdogan himself, is only a sign of how pressure has been exerted and how the country's monetary policy has been influenced, and is now suffering its serious consequences. According to investors, Erdogan's attempt to make loans cheaper has been one of the big problems. And the fact that two governors lost their posts because they did not accept the pressure is proof of this.

Agbal, formerly finance minister, has tried to calm the situation, proposing an action which he says is "rational, correct and realistic". One of the challenges facing the new governor is to increase Turkey's dwindling reserves, which were greatly reduced last year in the failed attempt to revive the lira. 

The lira is, according to Bloomberg, the second worst performing currency of all emerging markets. To the country's fragile economic situation should be added the risks Erdogan is taking with the aggressiveness of his geopolitics in the region and his interference in some of the conflicts in his environment.

According to the capital manager Ogeday Topcular, even if all the conditions are met and the measures proposed by Agbal are implemented, the cleaning up of the Turkish economy "will be a costly, constant and long term process". Only in this way can "credibility be restored, he adds.
 

The simple departure of the former governor has already been a stimulus for investors, as they understand that Erdogan's influence on monetary policy will be reduced, although Turkey's macroeconomic situation remains worrying.

One of the economy's main problems is the loss of the country's foreign currency reserves over the past five years. The reserves are now at the level of 15 years ago.

Another striking aspect, which must be reversed, is Turkish society's preference for using the dollar to safeguard deposits. According to data from the Turkish Central Bank, dollar deposits had risen by 19% by December this year to over $231 billion, a figure that would also have increased by 20% last year.

In addition to all this drift, the friction between Turkey and the United States, and the European Union's sanctions, Ankara faces a dark future that only a rapid arrival of the vaccine, which will enable tourism and, therefore, the economy, to be fully reactivated, can palliate.