Economic collapse may lead Turkish president to call early elections

Erdogan's plan to save Turkish lira fails

PHOTO/ARCHIVO - Le plan du président turc Recep Tayyip Erdogan pour sauver la livre turque échoue après que la livre ait subi une baisse accélérée au cours des quatre derniers jours par rapport au dollar américain PHOTO/FILE

Updated: 01/01/22

Turkish President Recep Tayyip Erdogan's plan to save the Turkish lira fails after the lira suffered an accelerated decline over the past four days against the US dollar. Although the Turkish lira rose more than 50 per cent last week after state-backed interventions in the market, the lira has lost 38 % of its value this year. Just this Thursday it recorded a historic fall of 5.6 %.

Faced with this situation, the Turkish central bank confirmed on Wednesday that it will prioritise measures to encourage depositors to save in lira by 2022. The new financial instrument may allow depositors to earn the same level of potential returns on foreign currency savings as holding assets in Turkish lira. However, the fall of the lira and the Turkish Central Bank's announcement of a historic decline in its foreign exchange reserves has led to a decline in confidence in the Turkish lira, with the confidence index falling to 1.8 % this December.

In Turkey, total cash reserves declined by $5,700 last week, the same period in which the bank's net foreign currency reserves declined by $3.6 billion. On the other hand, and excluding foreign currencies and gold held by the bank as debt and loans, reserves decreased by 9 billion dollars.

With a negative sign in front, - 55.7 billion dollars of net reserves, the Central Bank of Turkey has played an important role in the fall of the exchange rate through a rapid and intense intervention in order to stop the collapse of the currency. Meanwhile, statements by Finance Minister Noureddine Nabati raised new questions about the fall in exchange rates. "The citizens took part in a race and did everything they could to change their currency," she said, adding that there was no interference in the currency exchange. "Is Turkey such a clumsy country that it will sit back and watch events on its own and not use all the tools it has in a positive way?" the minister added.

Several state banks oversold dollars last week to prop up the lira after President Erdogan announced a deposit protection plan aimed at stemming the currency crisis, a plan that has failed as the Turkish lira plunged.

This economic collapse and Turkey's financial crisis may lead President Erdogan to call early elections after his prolonged unpopularity due to the failure to save the Turkish lira, among other things. This possible election announcement is a long-standing demand of the opposition, but one that could nonetheless confuse the opposition coalition, whose parties have yet to agree on a presidential candidate. In any case, the effect of this message will depend on the direction of the lira and inflation, and its impact on Turkish citizens, whose purchasing power has declined.