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Ankara’s approach is notable at a time when countries everywhere are aiming to devalue their currencies to strengthen their trade competitiveness. In contrast, the Erdogan administration is still trying to maintain its high interest rate/low FX rate policy albeit with what some experts say can be deemed fake real rates. Erdogan’s real rates may be fake but the real return he offers is high as long as he can avoid another currency crunch. Bloomberg on August 5 published a story entitled “Japanese investors set aside host of concerns, chase 15% yields to Turkey”. The Japanese retail investors quoted by the news service come across as having no idea what is actually going on in Turkey, but they are happy with the nominal lira yields at a time when the Turkish currency is emerging as the currency in the world on the strongest trajectory; their approach based on their FX-denominated returns is better than calculating real rates with artificial inflation figures as the inflation or interest rate parities for the lira never hold.
This is not the first time that crafty politicians in Turkey have exerted pressure on the exchange rates and manipulated official data. And it is always followed by a sharp, sudden realisation of accumulated devaluation with the convenient but misleading trigger being something like a kidnapped US pastor that rocks the geopolitical boat, the president throwing the constitution out the window or Ankara getting the West’s back up by working on defence with the Russians. Let’s wish that someone can tell the Japanese when they should say goodbye to their arbitrage, but they told Bloomberg they’ve only allocated 15% of their portfolios to lira bonds.
Turkey’s three state-owned banks, Ziraat, Vakif and Halkbank, have reported that under a financing package called IVME they have provided TRY1.7bn (€275mn) in loans to a total of 11,500 companies operating in various industries. The idea behind the IVME financing package, which was announced by Treasury Minister Berat Albayrak in mid-May, is to assist sectors highly dependent on raw material imports for production, much of which is then re-exported as processed goods. The joint statement made by the three state banks on August 5 noted that local companies producing machinery and equipment have received TRY665mn since the launch of the scheme while animal feed producers got TRY310mn. The lenders provided TRY170mn to the chemicals industry and local food companies received TRY90mn.
The amount extended by the state lenders since mid-May is, however, not large enough to reignite the engine of economic growth. In his remarks back in May, Albayrak said that under the so-called IVME financing package a total of TRY30bn would be provided until the end of the year.
In a bid to boost consumer demand, Ziraat, Vakif and Halkbank cut their housing, consumer and corporate loan interest rates following the 425 bp benchmark interest rate cut adopted by the central bank. More than
10 TURKEY Country Report September 2019 www.intellinews.com