Ruth Michaelson and Deniz Barış Narlı
(Guardian) — The morning light filters through the rooftops and into a slim
sunlit alleyway in Istanbul’s Grand Bazaar, and the currency traders who
provide a bellwether for the Turkish economy arrive. Each is clutching at
least two mobile phones, along with glasses of bitter Turkish tea and packs of
cigarettes. There are stacks of mobile phones on a nearby ledge, ready for
currency trades yelled into them at speed.
The mood is palpably tense, cresting into a wave as trading opens and the
entire crowd filling the alleyway swiftly transforms into a frantic bidding
war.
“Is anyone buying dollars?” yells a man in a Galatasaray sports jacket as he
leans against the bazaar’s 500-year-old stone wall. “I’ll buy – but only this
evening,” yells another. “I’m ready to buy dollars at 2pm – anyone want to
buy? 2pm anyone?” shouts a third trader.
“There’s a liquidity problem – people are trying to sell, but they can’t so
it’s getting tense,” mumbles a gold trader named Erdal as he passed by to
observe the frantic crowd, before returning to the gold market in the next
alleyway when it began trading.
In the three weeks since the Turkish president, Recep Tayyip Erdoğan, was
re-elected to begin his third decade as leader, the value of the lira has
tumbled, falling an estimated 16% against the dollar after the first round of
the elections in mid-May, according to the Fitch ratings agency.
The country is reeling from a profound economic crisis. The lira halved in
value two years ago and inflation is officially 39.59%, although unofficial
estimates from Turkey’s Inflation Research Group put it at more than 100%.
Economists from Bloomberg estimated last month that Turkish authorities had
spent $177bn on supporting the currency since the lira plummeted in December
2021. The investment bank Goldman Sachs noted shortly after the election that
the lira fell further and faster than they anticipated, surpassing record lows
of 20 to the dollar. As the currency traders arrived at the Grand Bazaar, the
lira was trading even lower.
“Right now, it’s about 23.5 lira to the dollar, but there are firms trading it
at 25-30 to the dollar as an investment in the future, and it’s making things
worse,” said Erdal, leaning back on a torn leather office chair in a cloud of
cigarette smoke as he waited for the gold market to open. Overhead, another
trader leaned around the tangle of electrical wires obscuring the bazaar’s
painted stone arches to polish the metallic lettering above a shop.
Things were frantic before the election, said Erdal, as crowds of people
nervous about the economy flocked to the bazaar to change their money into
dollars. According to the Turkish financial outlet Ekonomim, the Turkish
central bank itself transported 5bn lira to the Grand Bazaar in order to
exchange it for dollars, amid a biting foreign currency shortage that persists
today.
Now, in a strange state of suspended animation, the traders and the country
are waiting to see how the new government might change course on the economy
before a much-anticipated central bank meeting on 22 June.
Erdal’s dislike of currency speculators did not stop him or other traders
deciding to privately invest using their own knowledge of the market. “A few
weeks ago, we knew the price of the dollar would increase, so we prepared and
invested accordingly,” he said. “When it was worth 18 or 19 before the
election, we bought dollars. When it hits 30, I’ll sell. Right now I’m just
waiting.”
The currency traders all nodded sagely at the mention of the finance minister,
Mehmet Şimşek, whose reappointment to Erdoğan’s cabinet was intended to signal
a shift towards more orthodox economic policies, as well as an end to the
government using reserves to support the lira. Şimşek’s main task, along with
the new central bank governor, Hafize Gaye Erkan, appears to be convincing
Erdoğan of a desperate need to raise interest rates in order to combat
inflation.
“I believe Şimşek needs to raise interest rates – but it might not be enough.
We need at least a five-percentage point raise,” said currency trader Cafer
Deniz. Others, notably economists from JPMorgan, say that a far higher
increase of 25% is “on the table for 22 June or earlier”.
However, Deniz believed the finance minister could raise interest rates
gradually in order not to spook the president, who has long spoken of his
eccentric belief that higher interest rates cause, rather than curb, inflation
and described himself as “an economist”, in a recent pre-election interview
with CNN.
Speaking to reporters on his way back from Azerbaijan, Erdoğan told of his
willingness to help Şimşek succeed, but paradoxically also stated that “my
mind remains unchanged” on issues of orthodox economic policy. He added:
“Regarding the present outlook of our minister of treasury and finance,
however, we approved that he should take the steps he intends to take with the
Central Bank as soon as possible, we wished him success, and we informed him
of our resolve to reduce inflation to single digits.”
Like the myriad currency and gold traders that mentioned Şimşek’s name, Deniz
took comfort in the economist’s reputation due to his previous stint as
finance minister as well as time served at Merrill Lynch in London and at
investment bank UBS on Wall Street. “We’re expecting good things in the mid to
long term,” he said. “Not the short term, however.”
His colleague Haci Coçak agreed. He said: “Things can change in the blink of
an eye right now. It will take time to repair the economy.”
The difference between a shift in personnel and policy persists. Erkan is
Turkey’s fifth central bank governor to be installed since the economic crisis
began in 2018, amid Erdoğan’s increasing influence over the role. Like Şimşek,
she has worked in the US. A former employee at Goldman Sachs, she was co-CEO
of First Republic Bank, leaving the year before it collapsed, and is named in
a class-action lawsuit related to the debacle.
The ratings agency Fitch said “it will take some time to determine the impact
and durability of any policy change”. It added: “The previous central bank
governor remains in the economic management team as head of the financial
regulator. Hence, it will take time to determine the durability of any policy
shift.”
Other traders in the bazaar, desperately reliant on the annual influx of
tourists to bring in foreign currency, were feeling less positive about the
state of the economy.
“In this period after the election I’d say we’re having the worst season in
our history. There are days where we go the entire day without making any
sales,” said Hasan Karablut, standing with his arms crossed next to a pile of
fake designer shoes. In addition, he said, wholesale prices of products
imported from China are rising fast, as well as shipping costs.
“When the dollar is high, tourists should want to come here and buy things.
But it’s not happening right now,” he said, frustrated. “I’ve been in this
business 25 years, I’ve never seen anything like this before. Three days ago I
didn’t make any sales, I closed my shop early and went home.”
