Foreign investors to look at implementation of new economic program

Even though it has been deemed to be positive due to the realistic targets it entails, the new economic program (YEP) could not restore confidence, especially among foreign investors.

Foreign investors intend to make their call after looking at the implementation of the YEP.

The bankers I have talked to have said the credibility necessary for the foreigners was not restored and that showed itself in foreign exchange and interest rates.

Bankers expected the 6.25 percent interest rate hike and the announcement of YEP to make a much better resonance in the market, but they said this expectation was not met and the anxiety among foreigners especially was not alleviated.

The inflation and growth target in YEP was close to the market’s expectations and that was the main reason why YEP was met positively by the domestic public opinion, especially by the business community.

But as YEP started to be debated, even the feasibility of these targets started being questioned. We can say that the targets for current account deficit and foreign exchange are much more questionable.

The transparency that has been required next to realism was not given enough consideration in the YEP announcement. That’s why, the 60 billion Turkish Lira cut in expenditure seen in the budget was an item approached with suspicion as the details for savings were not listed. In addition, the achievability of such levels of savings in 2019, when local elections will take place, as well as the difficulties in terms of cuts foreseen in social security started being debated.

Foreign investors underline the necessity for the Central Bank’s independence to realize these forecasts and there are indications that foreign investors have serious doubts regarding this subject.

According to a banker, who has spoken to over a dozen foreign investors following the announcement of YEP, said foreigners are of the view that a program close to the expectations of the markets was announced but they are in serious doubt as to whether this was just done to satisfy the markets or if it is a program that will genuinely be put in force.

Looking at the actions taken by the foreigners, it is easy to detect the hesitation, said the banker.

“A significant interest rate hike and the announcement of YEP were not enough. If the purpose is to have economic stability, the additional steps to be taken need to be thought over,” the banker added.

In sum, the foreigners whose approach to the YEP was not negative but who found it insufficient will look at the implementation to divert funding back to Turkey and it is therefore imperative that one has to take action as soon as possible.

I asked the same banker whether rapprochement with the European Union or positive news from the upcoming visit of President Recep Tayyip Erdoğan to Berlin might have a positive effect on the markets. The banker said this would not solve the immediate problems, and as they involve long-term perspective their impact on the market in the short term would not be strong.

The only political development that could positively affect the markets, according to the banker, is the release of U.S. pastor Andrew Brunson and the revival of relations with the United States.