Uncertainties posing risks to Turkish economy

As the free fall of the Turkish Lira against the U.S. dollar and euro continues, Prime Minister Binali Yıldırım has said it was uncertainties that were posing risks to the Turkish economy.

Speaking at the 21st Eurasian Economic Summit held by the Marmara Group in Istanbul on April 11, Yıldırım highlighted geopolitical uncertainties but did not ignore the debate on interest rates, rising inflation, widening current account deficit and economic growth at the same time.

The geopolitical uncertainties are clear. While the prime minister was delivering his speech, an escalating tension between the U.S. and Russia over Turkey’s war-ravaged neighbor Syria was continuing at full steam. Yıldırım likened the countries making statements against each other to bullies fighting each other on streets. But the gravity of the situation at Turkey’s borders is actually a buildup of arms to the region, especially when the Turkish military is currently on Syrian territory. But the political uncertainties are not only limited to the antagonism between the U.S. and Russia. They are likely to get more complicated, as the U.K., France, Iran and Israel are mulling intervention. It is natural under such circumstances that more complication in Syria means more political, thus economic, pressure on Turkey.

In his speech, the prime minister turned down criticisms on “overheating” in the economy by the International Monetary Fund (IMF), without giving the fund’s name, saying that because there was no overheating in the Turkish economy, there is no need for the economy to cool down. He stressed the focus on growth will continue. But Yıldırım admitted that it was the government’s duty to fight rising inflation rates, as it is a major factor “influencing the decisions of investors” as well as the ordinary citizen. 

President Tayyip Erdoğan is the major actor in the debate on interest rates. Erdoğan frequently slams the Central Bank, telling them he wants the rates to be decreased. Presidential Spokesman İbrahim Kalın had to deny speculations last week that Mehmet Şimşek, deputy prime minister in charge of the economy, was resigning or being removed from office because of alleged discrepancies about rates and the Central Bank’s independence from Erdoğan. Yıldırım also said that the Central Bank was in full control over the developments and the government’s indicators were not in line with the concerns triggered by the fluctuations in the currency. A few hours before Yıldırım, Economy Minister Nihat Zeybekci said no additional measures were planned for intervention in the currency, despite the fact that the rate of depreciation of the lira against the U.S. dollar has been 9 percent since the beginning of the year.

“Uncertainties are bothering,” Yıldırım said. “They are bothering investors, they are bothering everyone. But most of them are circumstantial,” he added. 

Erdoğan, on the other hand, used a different rhetoric regarding the economy in his speech at the Presidential Complex in Ankara. He said the government was strong enough to void all conspiracies against Turkey, including the ones in the field of economy.