Currency crisis in Turkey: the slightest shock is enough to shake the economy

In Turkey, the rate of the lira has fallen sharply. This currency crisis could be a real economic crisis, fears the Turkish economist Seyfettin Gürsel.

Currency crisis in Turkey:   the slightest shock is enough to shake the economy
  • Page 1 — "The slightest shock is enough to shake economy"
  • Page 2 — "The current events are absolutely exceptional."
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    The Turkish currency is losing value. It is primarily policy that is responsible for this, Economist Seyfettin Gürsel. As professor of Economics, he is head of Center for Economic and Social Research (BETAM) at Bahcesehir University in Istanbul.

    Online Time: Mr. Gürsel, on Friday alone, lira lost 15 percent. Has this been same in Turkey?

    Seyfettin Gürsel: What happened Friday is absolutely extraordinary. Since introduction of free exchange rate, this has not existed. Even Thursday, I would not have expected such a crazy crash, even if it was clear that lira could continue to lose value. The decline of lira began in May with visit to Erdoğan's in London when it announced that it would bring more control of monetary policy. Since n, confidence of markets has been shattered.

    Online Time: The situation has worsened after parliamentary and presidential elections in June.

    Gürsel: After election, investors expected a return to normality and insisted that economic vice-Regierungschef Mehmet Şimşek would remain in cabinet. But instead, Erdoğan has appointed his son-in-law Berat Albayrak as Finance and economics minister. That was anor shock. Then came crisis of American pastor Andrew Brunson, who provoked rage of Trump and led to imposition of sanctions.

    Online Time: So currency crisis has more political than economic reasons?

    Gürsel: Yes, but now slightest shock is enough to shake economy. Minister of Economic Affairs, Albyarak, yesterday, with presentation of a new economic model, tried to restore confidence. But he said almost nothing, and as he showed that he only had empty phrases to offer, lira continued to fall. Then Trump's tweet came to double tariffs on Turkish steel and aluminium exports, and that's what fire did.

    Online Time: As market confidence is damaged, what should government do?

    Gürsel: When we ask economists such a question, we rely on established economic ories in assumption that those responsible in government share same ories. But this is no longer case in Turkey. I have no idea what government is going to do. Even before election, I warned that government cannot continue on its course because growth was doped by subsidies.

    Online Time: Would it not be possible today to dope economy?

    Gürsel: The state no longer has means. Even before election, inflation rose, lira fell, deficit widened, so a policy change was needed. Today, situation is much worse, so adjustments are much more difficult. But government does not seem to see this – or according to certain conspiracy ories, it deliberately takes decline of lira into bargain.

    Online Time: Would re be any economic logic to rely on devaluation of currency?

    Gürsel: Erdoğan desperately wants to avoid an increase in interest rates. His ory is that low interest rates help to increase growth, and inflation will go down on its own. I don't want to steal your time to explain why this ory is wrong. But even if we assume that it is correct, it does not work if no one else believes it. Rar, it deters investors.

    Date Of Update: 12 August 2018, 12:00

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