Turks are now acting as if it came by surprise. The Turkish Lira has lost around 9% of its value against the dollar in a single month. If you take January of this year as the starting point, it has reached to around 27%. Why?
There are two types of countries in the world: those where the government determines the value of the currency and those where the markets to do it. Turkey is in the second category. We are no Venezuela when it comes to the currency regime, nor a China. The Turkish Lira has been fully convertible since the late 1980s and it has been freely floating since the 2001 crisis. That means that it acts as a barometer for market forces, and the government keeps a close watch on its movements.
What happens whenever the authorities do not take the “necessary” measures? The exchange rate adjusts. The Central Bank is seen as a lame duck and not in a position to raise the rates when necessity? The exchange rate adjusts. Investment environment in the country not conducive? The exchange rate adjusts. Direction of fund flows changing due to external reasons? The exchange rate adjusts. Security situation deteriorating in the country? The exchange rate adjusts. Policy uncertainty growing in the country? The exchange rate adjusts. Political uncertainty bubbling up? The exchange rate adjusts. You get the point.
All of that is happening now, and the results are all too clear. Turkey is moving into the eye of the storm, a position of extreme uncertainty . In an environment where our policy uncertainties are exacerbated but political uncertainties, the imminent Fed decision, as well as the fast-heating war against the PKK, are not going to make the situation easier to handle. Turkey is on the verge of evolving into a hot potato, if you ask me.
If our political leaders were a little less constipated, we might have had a new government after the June election. Alas, they have failed us, and we are heading towards a snap election under a rapidly deteriorating security situation. There is nothing to prevent the lira from a free fall, I’m afraid to say.
Turkey needs a new story line. I once told of a “Great Normalization,” in which the characters were moving towards a new democratic order. Maybe they got tired. For a new tale, we need fresh, credible protagonists. The problem is that there is no way for new people to rise to the top. For now, we will only be seeing free falls.
This commentary was published in Hürriyet Daily News on 22.08.2015
