Yesterday the lira passed the psychological barrier of 1.80 that many investors had feared and during midday trading was in free fall, surpassing the 1.82 level. This represents a more than 30 percent drop in value over the past six months. Levent Güven, head of currency trading at Türk Ekonomi Bankası, was quoted by Bloomberg yesterday as saying: "We are in uncharted territory, as 1.80 was a psychological point, and volatility will be very high from now on."
Many have been attributing the fall in large part to the absence of a stand-by deal with the International Monetary Fund (IMF) and the uncertainly associated with the signing of any possible agreement. The uncertainty went up a couple of weeks ago when Recep Tayyip Erdoğan, the Turkish prime minister, said the conditions proposed by the IMF were unacceptable.
Last week the Turkish Industrialists and Businessmen's Association (TÜSİAD) forcefully called on the government to sign an agreement regardless of the conditions that were being demanded.
The large financing shortfall, which the central bank estimates will likely be in the range of $30 billion this year, is seen as a source of concern by many investors. The argument is that an IMF agreement would lead to considerable confidence in the markets, even if the amount to be provided by the IMF falls well short of this $30 billion, and would help to stem the hemorrhaging of lira-denominated assets.
 The Turkish lira continues plunging, hits all-time low against the dollar. |
Political analysts that Today's Zaman has spoken with suggest that it is unlikely that an agreement with the IMF will be reached prior to the March 29 local elections.
The dismal January industrial output figures announced by the Turkish Statistics Institute (TurkStat) yesterday, which rang in at 21.3 percent below last year's January figures, have further shaken investors with respect to the seriousness of the crisis and further contributed to the loss of confidence in the lira.
Unfortunately, the benefits that exporters would hope to normally be experiencing in the present environment have failed to materialize as their export markets have shriveled. "At the moment our production facilities have almost completely shut down because of the low demand," said Ercan Tezer, secretary-general of Otomotiv Sanayi Dergesi (OSD). It will take at least two years for the sector to experience the benefits, he added.
And while a plummeting lira makes Turkish exports much more competitive, the volatility is leading to a host of new concerns.
Mehmet Büyükekşi, chairman of the Turkish Exporters Assembly (TİM), said that while a cheap lira is good for business, a volatile lira could potentially spell disaster for many exporters who need to make purchases, budgets and pricing plans. With the lira formerly in range of 1.3 to the dollar, where it had hovered for much of the last few years, he added, exporters have been in a difficult position. "We increased export volume but couldn't earn any profit," he said.
The present price exchange rate of 1.8 is not bad, he explained. However, he also said: "The problem is that it is fluctuating. This is very problematic for a company that budgets on a price of 1.8 but then the price decreases to 1.6."
For importers, the problems are even greater. Melahat Özkan, general secretary of the Food Importers Association (TÜGİDER), said that the effects have been devastating. "Our members are being affected terribly, absolutely terribly. Terrible," he stressed, adding that sales were estimated to be down by more than 50 percent.
The worsening economic sentiment both within Turkey and globally has dragged the İstanbul Stock Exchange (İMKB) further down into negative territory. Yesterday the İMKB closed its first session down 0.72 percent and continued its descent in the second session, tumbling more than 1.72 percent.
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