The lira was trading at around 3.95 to the US dollar on Tuesday, a drop of nearly one percent since Monday morning. In May 2013, the lira traded at approximately 1.92 to the US dollar.
Tensions with the US over the trial of Iranian-Turkish businessman Reza Zarrab for alleged violation of US sanctions on Iran, inflationary pressures, monetary policy indecision and Turkish President Recep Tayyip Erdogan’s continued pressure on the central bank, threatening its independence, have all been cited as reasons for the plummeting lira.
The response of Turkish politicians from the ruling party has been to call it an “economic coup attempt” directed by Turkey’s external enemies.
The Turkish central bank announced that borrowing would be more expensive from Wednesday in an attempt to stem the slide.
For people like Veysel, a senior manager at a Turkish corporation, such talk means nothing and his only concern is preparing for what he considers bleak times ahead.
“Gold is the only solution. We have seen this before. The politicians will lie until the last second, even after they sink us. We must remove whatever we have from the bank and buy gold if we don’t want to lose everything,” he told Middle East Eye, asking that his last name and place of employment be kept anonymous.
With its massive current account deficit and the large amount of dollar-denominated short- and long-term borrowings of Turkish firms, the loss of value in the Turkish Lira often has a multiplied domino effect on Turkish markets and the economy.
Markets and investors were already jittery over what revelations would surface as the Zarrab case got underway in New York.
Zarrab, an Iranian-Turkish businessman, is accused of violating the US’s Iran sanctions by engaging in and facilitating oil-for-gold trade between Turkey and Iran.Zarrab was also caught up in a corruption scandal involving high-ranking Turkish officials and ministers close to Erdogan in December 2013. Erdogan and the government said the entire affair was a “coup attempt” which was fabricated and the work of Gulenists in the police and judiciary.
Gulenists are followers of Fethullah Gulen, a US-based Turkish preacher, whom the authorities also hold responsible for last July’s coup attempt.
Turkish officials and pro-government media have called the US trial “politically motivated” and an extension of the botched plot of December 2013. They say the prosecutors and judge in the case have links to Gulen. The start of the trial, scheduled for 27 November, has been pushed back to 4 December.
Turkey’s central bank is under intense pressure from Erdogan to slash interest rates while facing market pressure to hike rates to keep inflation and the currency under control.
In a speech last week Erdogan raised fears over the bank’s independence saying a lack of government interference in monetary policy was behind rising inflation.
Erdogan and his economic aides maintain that lower interest rates will also boost the economy by increasing liquidity based on increased non-dollar-denominated borrowing.
“I am worse off than I was three years ago despite promotions. Everything I buy is tied to the dollar but my salary is in lira. I am poorer now than I was in 2014,” said Veysel.
The price of diesel passed the five lira barrier for the first time last week. Petrol was also being sold at an all-time high of 5.61 lira. The body in charge of regulating fuel prices announced a slight discount for petrol as of Wednesday with the sale price expected to be 5.54 lira.
While white-collar workers like Veysel are looking to take precautions in the face of an impending economic crisis, people like Mert, a street vendor, have few options.
“I have no savings to make a choice about. We can only eat what we earn on any given day. But I hope there is no economic crisis because then my sales will drop as well. We will all suffer,” Mert told MEE.
“I push my cart by hand so I don’t need petrol or diesel either. And thankfully the fish I see is not priced in dollars yet.”
Turkey’s last major economic crisis was in 2001.