Turkey Takes Further Steps to Bolster Slumping Currency
December 08 2016 - 3:10PM
Dow Jones News
ISTANBUL—Turkish Prime Minister Binali Yildirim announced
Thursday the creation of a $72 billion fund for local businesses,
part of a spate of new government measures aimed at supporting the
country's slumping currency.
Turkey's currency, the lira, has dropped 18% against the dollar
this year and has traded at historic lows since early November
because of Donald Trump's surprise victory in the U.S. presidential
elections, as well as political uncertainty following last summer's
failed coup and the imposition of a state of emergency.
The selloff by emerging markets following the U.S. vote, and
expectations of an interest-rate increase by the U.S. Federal
Reserve this month, have compounded the country's economic
woes.
Turkish officials have insisted for months that the economy was
stable and secure, despite a growing chorus of economists outside
the country pointing to its weakening fundamentals. In recent days,
the ebbing lira has evaporated that optimism.
In a bid to reverse the slide, President Recep Tayyip Erdogan
launched a campaign last week urging government ministries,
corporations and the public to demonstrate their patriotism by
converting their foreign currency savings into lira or gold. The
president himself exchanged his savings into lira, according to his
spokesman.
Turkey's Defense Ministry and Borsa Istanbul, the country's main
stock exchange, said they were changing their assets into lira. The
Turkish Privatization Administration said it would accept all
payments, privatization tenders and letters of guarantee in lira,
and the Energy Markets Regulation Authority said it would issue gas
distribution tenders in lira instead of dollars.
Small businesses also jumped on the bandwagon, with some
offering free food and services such as haircuts to anyone who
traded their dollars and other foreign currencies for lira.
These initiatives, however, have had only a modest effect in
calming the markets, so Mr. Yildrim stepped in Thursday by offering
fresh stimulus for businesses and promising relief for workers.
The government, he said, would extend a credit line up to 250
billion lira—about $72 billion—to businesses to help them ease
their cash crunch.
It also would maintain fiscal discipline—travel by government
employees would be cut back and new vehicle purchases canceled, the
premier said. Tax rates would be kept steady next year, and there
would be government help to boost employment.
All public institutions would be ordered to sign contracts in
lira and if possible, existing contracts would also be converted
into Turkish lira—a move, the prime minister said, that could save
the government around $10 billion.
"We are aware of real sector problems and will continue to stand
by all parts" of the economy, Mr. Yildrim said.
Late Thursday, the lira was trading 2.2% lower against the
dollar at TRY3.4633, compared with TRY3.4149 before Mr. Yildirim's
announcement in the capital Ankara. The fresh proposals came after
the European Central Bank extended its monetary stimulus to end of
2017 but said it would reduce levels to 60 billion euros a month
after March.
Inan Demir, an analyst at Nomura PLC in London, said the
measures taken by the government were disappointing.
"Contrary to market expectations for measures to address
currency weakness, the package was mostly about credit growth," Mr.
Demir said. "In our view, the authorities' response to the exchange
rate developments have been underwhelming."
Write to Yeliz Candemir at yeliz.candemir@wsj.com
(END) Dow Jones Newswires
December 08, 2016 14:55 ET (19:55 GMT)
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