Devaluation in Turkey: Is There a Struggle Program?

Since the mid-1980s, with the aim of strengthening the infrastructure of Turkey, Prime Minister Turgut Özal borrowed abroad. To attract loans to the country, Özal preferred the monthly "exchange rate corridors", instead of delaying the inevitable devaluation for a long time.

After the end of the Cold War, Turkey became acquainted with the first severe devaluation in early 1994. Due to foreign financial debts, the head of the government Süleyman Demirel sent women to retire at 38 years old, and men in 43 years and becoming President in May 1993 he left Prime Minister Tansu Çiller with a collapsed economy.

The banking crisis, provoked by a shortage of currency, culminated in an economic program adopted on April 5, 1994 by the Çiller - Karayalçın coalition: the people were presented with a "bitter recipe."

After the end of the 1990s under conditions of devaluation, high interest rates and inflation, the Republic of Turkey experienced its most severe economic crisis since February 19, 2001. The fact that the crisis would happen was known: each state bank was tied to each state minister. Each company, which had $ 50 million, created a bank for itself and allocated loans for itself. Hence, the unthinkable need for US dollars arose on the foreign exchange market.

In conditions of heavy devaluation of the Turkish lira, when no bank without a letter of guarantee from the Treasury and the Central Bank could receive a loan abroad, the government invited the Vice-President of the World Bank Kemal Derviş to Turkey, completely handing over the management of the economy to him.

Derviş closed most of the banks and, as a result of his program, the economy began to straighten out. In the course of early elections conducted by the request of the partner of the coalition, Devlet Bahçeli, on the wave of devaluation, the formerly banned AKP created by Recep Tayyip Erdoğan was victorious on November 3, 2002.

The AKP continued the policy of Kemal Derviş, using the world's money surplus, and in its first two years of government attracted a lot of money to the country. The stability of the Turkish economy was violated in June 2011, when the AKP came to power for the third time and became the sole ruler of the country.

For ideological reasons, large companies were forced to withdraw from the sphere of investment, and their place was taken by the construction companies close to Erdoğan. Despite numerous EU warnings, frequent changes in the law on tenders had a negative impact on the investment climate in the country.

As recently stated in the World Bank report, in recent years, five companies close to Erdoğan have been awarded tenders worth $ 136 billion.

Erdoğan, whose goal was to change the political system of the country, for this purpose held elections and referenda in the period from 2001 to 2018 in a row. For his victory in elections, the government spends astronomical amounts from the treasury and the Central Bank, thus violating the balance, as well as financial and budgetary discipline.

Now the fact comes out that under the influence of political will in the summer of 2011 the Treasury and the Central Bank provided guarantee letters for receiving loans abroad in large amounts.

So, every year Turkey's debt from oil and gas imports has amounted to 50-60 billion dollars, and if we add government spending, the total debt is about half a trillion dollars. That is, Turkey itself created the existing devaluation crisis, because it lived beyond its means.

August was the most worrying month in the foreign exchange market. The Turkish lira fell against the US dollar by about 40% as a result of the payment of an external debt of $ 100 billion in September alone. President Erdoğan's demands that "the Central Bank should keep low interest rates" was not observed. Over the past 2 years, the interests in total have increased by 100% and revealed the following reality:

1. Unlike the previous economic crisis, Erdoğan does not have a program to deal with the crisis that has arisen because of a large external debt.

2. Another difference from previous crises is that Erdoğan threatens the business world with the intention to take legal measures against it. The Minister of Treasury and Finance, Erdoğan's son-in-law Berat Albayrak held numerous meetings with local and foreign investors. However, no program was announced for a short and lengthy postponement of payment of foreign debt (it is noted that this will happen on September 20)

3. The Central Bank has 18 billion dollars of foreign exchange reserves for sale on the market. Therefore, in its present condition, the bank cannot use any means, except for raising interest.

Turkey has fallen into a stalemate state. Everyone with interest expects how the economy of Turkey will come out of the "external debt" crisis.

Another topic of interest is the situation with the Azerbaijani manat, which has again got "under the pressure of a stable rate." Because Azerbaijan collided with two heavy devaluations in February and December (Saturday and Monday) 2015. But could Azerbaijan stabilize the national currency by transferring it to a floating exchange rate? And is the increase in oil prices again considered as a factor of "pressure of stability" on the manat? It is not too late to ponder this question.