Bilali Yıldırım announces that Turkey $72 billion fund to help local businesses
Turkish Prime Minister Binali Yildirim announced Thursday the creation of a $72 billion fund for local businesses, part of a spate of new government measures aimed at supporting the country’s economy and slumping currency.
Turkey’s currency, the lira, has dropped 18% against the dollar this year and has traded at historical lows since early November. This has happened against the backdrop of the political uncertainty following a failed coup in mid-July and the imposition of a state of emergency.
THE SELLOFF BY EMERGING MARKETS FOLLOWING THE VOTE
The selloff by emerging markets following the vote, and expectations of an interest-rate increase by the Federal Reserve this month, have compounded the country’s economic woes.
Turkish officials have insisted for months that the economy was stable and secure, despite a growing chorus of economists outside the country pointing to its weakening fundamentals. In recent days, the ebbing lira has extinguished that optimism.
IN A BID TO REVERSE THE SLIDE
In a bid to reverse the slide, President Recep Tayyip Erdogan launched a campaign last week urging government ministries, corporations and the public to demonstrate their patriotism by converting their foreign currency savings into lira or gold. The president himself exchanged his savings into lira, according to his spokesman.
Turkey’s Defense Ministry and Borsa Istanbul, the country’s main stock exchange, said they were changing their assets into lira. The Turkish Privatization Administration said it would accept all payments, privatization tenders and letters of guarantee in lira, and the Energy Markets Regulation Authority said it would issue gas distribution tenders in lira instead of dollars.
SMALL BUSINESSES ALSO JUMPED ON THE BANDWAGON
Small businesses also jumped on the bandwagon, with some offering free food and services such as haircuts to anyone who traded their dollars and other foreign currencies for lira.
These initiatives, however, have had only a modest effect in calming the markets, so Mr. Yildirim stepped in Thursday by offering fresh stimulus for businesses and promising relief for workers.
The government, he said, would extend a credit line up to 250 billion lira—about $72 billion—to businesses to help them ease their cash crunch.
It also would maintain fiscal discipline—travel by government employees would be cut back and new vehicle purchases canceled, the premier said. Tax rates would be kept steady next year, and there would be government help to boost employment.
All public institutions would be ordered to sign contracts in lira and if possible, existing contracts would also be converted into Turkish lira—a move, the prime minister said, that could save the government around $10 billion.
“We are aware of real sector problems and will continue to stand by all parts” of the economy, Mr. Yildrim said.
Late Thursday, the lira was trading 2.2% lower against the dollar compared with before Mr. Yildirim’s announcement in the capital of Ankara. The fresh proposals came after the European Central Bank extended its monetary stimulus to end of 2017 but said it would reduce levels to €60 billion ($64 billion) a month after March.
Inan Demir, an analyst at Nomura PLC in London, said the measures taken by the government were disappointing.
“Contrary to market expectations for measures to address currency weakness, the package was mostly about credit growth,” Mr. Demir said. “In our view, the authorities’ response to the exchange rate developments have been underwhelming.”