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The Turkish government with new ideas against the decline of the lira

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Status: 05.07.2022 09:00

The Turkish government has been struggling for months against high inflation and the fall in the value of the national currency, the lira. But instead of raising interest rates, it takes other measures. Concerned this time: business loans.

By Uwe Lueb, ARD Studio Istanbul

Turkish Finance Minister Nureddin Nebati is convinced that Turkey will soon no longer suffer from high inflation, he recently told parliament: “We have the experience and the equipment to fight against ‘inflation,’ Nebati said. “We are resolutely continuing our fight and will reduce inflation in a short time. We are doing everything possible to ensure that our fellow citizens are less affected by price increases.”

Just don’t raise interest rates

“Maximum” is the first but only inflation. In June, it rose year-on-year to its highest level in 24 years: almost 80%. After all, the government is making every adjustment it can think of to strengthen the Turkish lira – except for the key interest rate.

First comes the so-called “lirarization”: anyone who exchanges foreign currency for lira gets a guarantee that their money will not lose value. The state pays for it. Then, companies are forced to exchange part of their foreign exchange earnings from exports into liras. The latest move is to regulate the granting of loans to companies: if they still have a certain amount of foreign currency, for example US dollars, they cannot obtain a loan – with a few exceptions. As a result, many companies got rid of their currencies.

Economic expert and columnist Baris Soydan calls it “magic tricks” on his YouTube channel. “Following this decision, the public banks would have returned a billion dollars in a few days. This is why the dollar exchange rate fell somewhat,” he explains. “Others used it to buy dollars. In the end, it was about balanced, so the effect eventually wore off.”

Criticism of “powerless” attempts

Basically, all these attempts to support the lira are futile, believes Gizem Öztok Altinsac. “Turkey cannot cover its foreign currency deficit. That’s why we constantly hear about new regulations for procuring foreign currency,” says the chief economist of the TÜSIAD entrepreneurs association. “Most of this is about getting foreign currency from within – and preventing demand for foreign currency. Because we’re not getting fresh money from outside.”

Fresh money from outside would be investments from foreign companies, for example. But they find it difficult to invest in such an environment, explains Thilo Pahl of the German-Turkish Chamber of Commerce in Istanbul. “The pound will remain under pressure in the long term, and the constant changes in the value of the Turkish lira will continue to be a major challenge for local German businesses.” In the short term, however, German companies could benefit, says Pahl. Namely when Turkish companies liquidate their foreign exchange reserves due to the new measures and buy the necessary intermediate products in stock.

Foreign exchange reserves in the savings stock

According to economic expert Soydan, the whole development can also lead to even more unrest for another reason: “These latest measures affect companies and banks in particular.” First the banks, then the companies: some wondered when it would be the turn of individuals and that they might be forced to exchange their euros or dollars for Turkish liras.

Even now, some no longer trust banks with their foreign currencies – and prefer to literally stuff the money at home under their pillows. The main thing is that the state does not come closer. Because if the experts, market observers and analysts are right, the latest measure to regulate the granting of credit to businesses is only a flash in the pan. And other foreign exchange reserves are actually held by individuals.

Show me your currency and we’ll talk about credit

Uwe Lueb, ARD Istanbul, July 4, 2022 5:53 p.m.

Source www.tagesschau.de

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