Page 50 - TURKRptJun19

Still in the game despite that Istanbul 'yellow card': President Erdogan (left) and his son-in-law and finance minister Berat Albayrak.
By now there’s an unmistakable foreboding on the markets that Turkey is heading towards a default. As the government rolls out yet another pre-poll stimulus—this time as the ruling AKP moves to delete the humiliating loss it suffered in the Istanbul election in a poll rerun scheduled for June 23—and comes to terms with how it has killed off international and domestic financing channels, the sense of dread grows and the discussion on its possible bailout options grows louder and louder. Foreign financiers were wounded by Ankara during the run-up to the end-of-March local elections when during frantic efforts to defend the Turkish lira (TRY) before polling day Turkish officials resorted to shutting down the lira swap market in London, leaving traders up a shabby creek without a paddle. Meanwhile, going back to last November, government shenanigans on the domestic bond market have systematically spooked private investors. Officials probing unorthodox channels to finance the state budget reportedly last week gave up on a plan to tap the central bank’s legal reserves after even word of the plan undermined the lira, while at the same time Bloomberg was reporting that the government was ‘kindly’ requesting that local private lenders buy government bonds at domestic debt auctions for less than market prices. In other news with added-jitter-potential, revenue-starved officials have essentially made the offer of avoiding military service in return for a payment permanent, and a set of taxes, including a Tobin tax, are being pushed through, but how quickly is as yet unknown, as is how much money could realistically be generated.
Struggling for oxygen. Turkey is by now struggling for oxygen in its bid to support the battered lira, which has lost more than 40% of its value over the past two years. With the foreign currency reserves running low, investors are logically trying to map out Ankara’s remaining options for turning the tide. Reuters analysts made that plain on May 21 in an op-ed entitled “Turkey: Where to go when the cash runs low”. In the piece, some unnamed analysts estimated the government would have to find some $40bn-$90bn to avoid a sovereign default. Turkey’s current situation is “for many economists, a textbook emerging market currency crisis”, the article added. Observers might recall how Ankara found itself up against the balance of payments (BoP) crisis last August after the final trigger was pulled by the row between President Recep Tayyip Erdogan and Donald Trump over the detention of US pastor Andrew Brunson. However, it really is questionable, Brunson or no Brunson, as to whether Turkey ever had much of a hope of avoiding a lira collapse given its years-long credit-fuelled boom. And now the speculation is that this summer’s ‘Brunson’ could be the row between Erdogan and the US over the impending delivery to Turkey of Russian S-400 missile defence systems that pose a security threat to Nato hardware. It’s certainly handy for politicians who’ve botched their nation’s economy to have these supposedly decisive geopolitical issues to point to. The currency shock of last summer eventually brought a huge policy rate hike, runaway inflation and, unerringly, a deep
50 TURKEY Country Report June 2019 www.intellinews.com