Filenews 23 March 2021
The devaluation of the Turkish lira is turning Turkey into a cheap tourist destination, potentially affecting any tourist traffic we see this year in Cyprus and Europe, says Andreas Milidonis, Associate Professor of Finance at the University of Cyprus, in an interview with the CYPE.
Turkey, as Mr. Milidonis says, has reached the brink of a currency crisis after Erdogan's insistence on keeping interest rates low, which led him to a new change of central banker, his fourth in two years. "The appointment of the new head of the Central Bank of Turkey, Sahab Kafsioglu, experienced in banking matters, politicised in the AKP area and with an article (9/2/2021 in Geni Siafak) in favour of low interest rates, which is the Erdogan policy, does not inspire confidence in the markets that predict that it will find it difficult to combat inflation in Turkey. The outflow of foreign capital from the country has already begun and will worsen if it proceeds to cut interest rates. "Right now everyone is trying to get their money out of Turkey. The risk of non-repayment of short-term debt is also increasing," he says. He noted, however, that Turkey has a low external debt ratio relative to its GDP of around 35%."
As Andreas Milidonis reports, unlike Kafsioglu, the former central banker, Najit Akbar, was a technocrat and managed to partially gain market confidence, attract foreign investment and foreign exchange to Turkey and stabilise the exchange rate of TL. It was ceased by the Turkish President after the latest increase in interest rates, as a result – as he said – of the reaction of developing economies internationally (Brazil, Russia, Turkey, etc.) to the trend that seems to be developing in the US to raise interest rates.
"Akbar was appointed last November, when Murat Ouizal was removed from his post and the then Finance Minister, Berat Albayrak, had resigned. He also noted that since Mr. Akbar's appointment, there has been an influx of foreign capital into Turkey, more than other developing countries. The change of central banker, he added, led to an outflow of foreign capital from Turkey. At the same time, although the TL depreciated quite a bit yesterday against the dollar, price volatility is low, as it was in the summer of 2020 when the Central Bank of Turkey supported the price of TL with KT foreign exchange reserves. Whether this is happening today will be seen in a few weeks' time with the release of official data in the coming weeks."
Mr Milidonis also recalled that in the summer of 2020 the Turkish currency was under pressure to depreciate, while to support the TL an amount close to USD 140 billion had been used from Turkey's foreign exchange reserves in 1.5 years. This led, he says, to Moody's downgrading the Turkish economy last September and warning of an exchange rate crisis in Turkey.
"Europe has a report on Turkish debt and has therefore not ruled out an attempt to limit the likelihood of a monetary crisis, since European banks with exposure to the Turkish economy may be damaged."
No one, the Associate Professor said, can make a safe prediction today about the future of the Turkish economy, the problem, he said, is the confidence of foreign investors, low foreign exchange reserves and short-term debt - close to 20% of Turkish GDP - that expires within 12 months and especially the fact that with the super powers to the Turkish President no institution can work independently.
Source: Eyenews/CYP
