May 21, 2020

TURKEY: Usual tricks

BY Wolfango Piccoli

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( 3 mins)

Ankara declared on 20 May “mission accomplished” against the coronavirus outbreak, claiming that the pandemic had been contained. The health ministry has so far recorded 152,587 confirmed cases – which places Turkey in the global top 10 for infections according to a tally by Johns Hopkins University – and 4,222 deaths. President Tayyip Erdogan has announced a nationwide lockdown for four days (starts on 23 May) during the upcoming Muslim holiday of Eid al-Fitr that marks the end of the holy fasting month of Ramadan, raising hopes that this will be the final stay-at-home restrictions. The government is now scrambling to salvage the touristic season (two third of Turkey’s tourism revenues are earned between April and September) even if medical professionals have warned that it is too soon to say whether the pandemic’s spread has been curbed in the country.

However, it is certainly not “mission accomplished” on the currency front, far from it. instead, today’s likely new interest rates cut (in the 50-100 bps range) by the Central Bank (TCMB) will only further complicate the matter. Qatar’s decision to triple its FX SWAP facility with Turkey to USD 15bn and (groundless) remarks by Turkish officials that Ankara was close to reaching swap agreements worth in total USD 20bn with the UK and Japan have anchored the Turkish Lira (TL), providing the TCMB with the window to slash rates for the ninth consecutive time. The TCMB said the amendment of the limit on the 2018 swap agreement with Qatar’s central bank aimed to “facilitate bilateral trade” in local currencies and “support financial stability of the two countries.”

While the deal with Qatar will provide Turkey with some much-needed foreign funding to reinforce its depleted reserves, it confirms our view that Turkish officials are still unwilling to face reality. They favor stop-gap measures hoping that prospects of a rebound in exports (after the reopening of European economies) and tourism revenues will dispel the TL’s current woes. Structural reforms and, above all, measures that could boost monetary policy credibility are not on the agenda. The overall mindset and priorities that prevail in Ankara are outlined in our earlier piece “Erdogan’s politics of survival.”

Import compression is also part of Ankara’s growing repertoire of stop-gap measures. On 20 May, Finance Minister Berat Albayrak announced that the government would charge higher import taxes on over 800 goods to shield local producers from competition during the coronavirus pandemic. Turkey will impose additional taxes of up to 30% on products including construction equipment, cranes, agricultural machinery, iron and steel products, marble, granite, semi-finished leather products and spare automobile parts, which will be in place through the end of September. Recall that last week Ankara issued another decree imposing additional tariffs on around 400 goods of up to 30%.

The tariffs will not be applied to imports from countries with which Turkey has a free trade agreement, and they can be lowered by up to 10 percentage points as of 1 October if the government thinks that the situation has improved.

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