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AFTER SURVIVING A COUP ATTEMPT LAST YEAR
The lira rebounded on Thursday, while Mr Erdogan was saying the economy was under “terror” attack, and his government was blaming currency speculators and rating agencies for the malaise. The panic triggered by the knock-on effect of the enfeebled currency has exacerbated the gloom brought on by a seemingly never-ending purge that has invaded nearly every sector of society.
The purge is Mr Erdogan’s response to the July coup attempt and was billed as a targeted strike against people linked to Fethullah Gulen, the exiled cleric the president blames for the failed putsch. Its breadth, however, has gummed up one what was one of the world’s best-performing emerging markets — slowing down transactions, scaring off investors and pushing normally risk-taking Turkish entrepreneurs into a defensive stance. A currency board shows the lira rate yesterday. The currency has fallen 12 per cent in the two trading weeks of 2017 © Reuters For businesses, the biggest risk is the unstated — their partners today could be jailed tomorrow, their suppliers could be shuttered, their bankers vilified and their executives jailed. Hundreds of businessmen have been rounded up and $10bn in assets from more than 600 companies have been confiscated.
TENS OF THOUSAND OF WHOM HAVE BEEN DETAINED OR DISMISSED
For government employees, tens of thousand of whom have been detained or dismissed, granting permits or approving tenders carries equal risk — the uncertainty of not knowing if your applicant has Gulenist connections, or will be accused soon of doing so. “When you start an investigation, it has to end somewhere, but this has turned into a never-ending investigation,” said Guven Sak, the head of Economic Policy Research Foundation, part of an industry group that advises the government. “Without doubt, Turkey has never faced a network like this before, but we need more information from the government.” The mood in the business community is one of anxiety and fear. “I have proposals sitting on my desk that I want to act on, but I don’t know who to trust,” said the finance head of a construction firm. Like other executives who spoke to the FT, he requested anonymity. Some of the country’s largest and best-known companies have already been targeted in the crackdown.
Three executives of Dogan Holdings, owners of the Hurriyet newspaper, CNN-Turk, the news channel and the Trump Towers in Istanbul, have been detained. The reason: a relationship between 2012 and 2014 with a once-respected law firm that now is accused of being a front for Mr Gulen, according to Hurriyet. The turmoil has clouded Turkish achievements, Mr Sak said, citing the opening of a $1.3bn Eurasia tunnel, which goes under the Bosphorus, last month. “Every day something new is happening and every one of them needs an in-depth analysis,” he said. “But we have to move on to the next big one — and so, the Eurasia tunnel becomes a non-event, and we don’t even discuss the budgetary impact of a huge new infrastructure investment.”
THE UNCERTAINTY IS BEING FELT ACROSS THE CORPORATE SECTOR
The uncertainty is being felt across the corporate sector. “Things are changing so fast, so unpredictably, that we find it better to wait for the dust to settle,” said the patriarch of a well-known conglomerate. “No big moves, no big investment, nothing.” Their caution is warranted. As the lira has tumbled, the mismatch between the foreign-denominated loans held by Turkish corporates and their assets has widened to $213bn, according to calculations by Bloomberg. “Every dollar, every euro, every cent — we are saving it for the bank,” said the finance head of a services firm that must either pay back an $80m loan in February or refinance it at punishing terms. “I am not approving a single new expenditure right now.”
The trepidation has already hit economic output — growth shrank by 1.8 per cent in the third quarter of last year. With the lira in freefall, economists now fret about a recession. Arresting the decline has fallen upon a beleaguered central bank, pressed by Mr Erdogan to cut rates to jump-start the economy and by currency markets demanding a rate rise to tackle inflation and bolster the lira. The bank is due to announce a decision on rates in two weeks, and Mr Erdogan said on Thursday that it has “the necessary tools and ability to take measures on this”. Three days later, Fitch is expected to release its decision on the credit rating of Turkey’s sovereign debt. If it strips Turkey of its only remaining investment-grade rating, the lira is set for more pain. “The next weeks are key,” said a senior executive at a bank. “But right now, every hour seems key.”