Turkey’s central bank on February 16 donated Turkish lira (TRY) 30bn ($2bn) to the national earthquake aid campaign, with its governor Sahap Kavcioglu at one point calling in to a live marathon TV show broadcast to appeal for funds.
The donation can be seen as an interesting form of quantitative easing (QE), but it’s not new. The regulator, in fact, invented this financial window back in 2020 when it donated TRY 100mn to President Recep Tayyip Erdogan’s COVID-19 pandemic aid campaign.
In addition to the major sum from the central bank, local banks announced TRY 42bn of donations, bringing total bank donations in response to the campaign to TRY 72bn. An unmissable figure, but still rather negligible compared to the record TRY 2.5 trillion created in the Turkish economy via loans in 2022.
As the fundraising took off, there were few companies or institutions prepared to risk a horrible PR own goal by declining to make a donation. However, their donations did not amount to creating lira out of nothing, as was the case with the banking system.
In any case, non-bank legal persons’ deposits lying in bank accounts will join in the circulation. The government is already providing earthquake victims with around TRY 4bn in direct handouts.
The central bank, meanwhile, added that it would buy TRY 8bn of government papers from pension funds. The pension funds would use the money to buy stocks, supporting a stock market bashed by earthquake fallout.
On February 15, Borsa Istanbul reopened. The day also saw the USD/TRY pair hit a fresh record of 19.0370. The lira has never been weaker.
In another post-earthquake move, the government pushed listed companies to launch share buyback programmes. Some unnamed sources said that in addition Turkey’s sovereign wealth fund (TWF/TVF) would also more actively support share prices.
On the first trading day back since the earthquake suspension, non-official holders of stocks seemed to opt to offload their shares to official and para-official buyers before buying dollars. As further collapses in stock prices were avoided as of February 16, the rush to move from equities to FX seemed to cease.
The debate over whether Erdogan will postpone the presidential and parliamentary elections continued, but bne IntelliNews says it’s a done deal—a new election date will be set for November 2023 or March 2024 (open to further delays). The pre-earthquake intention to go for May 14 is out of the question.
Most probably, Turkey’s Supreme Election Council (YSK) or parliament (with a simple majority resolution) will arrange the postponement. The other visible option is a presidential decree if no other way can be invented.
The opposition may continue making some noise, saying a postponement would be unnecessary and unconstitutional, but this is the Erdogan regime we are talking about—those who want arguments over whether Turkey is a pure dictatorship, a neo-patrimonial regime, a country beset by competitive authoritarianism or any number of other things can go whistle. This is the Erdogan regime.
On the political scene, Turkey watchers will look out for coups, uprisings and other threats that could pose a threat to the regime in the upcoming election-less period. But there's little external pressure. From the United Nations to China to the US, no-one seems to have a problem with a continuation of Erdogan Rule.
Given that the pre-election period has been extended, a currency devaluation could be considered. However, the government has so far preferred to move for stricter capital controls (the capital controls mainstream press and analysts like to term macroprudential measures or non-capital controls, anything but capital controls).
In a new move, the finance ministry has finalised a regulation that bans gold imports via the “cash against goods” method.
The central bank has also asked local banks to charge a minimum 40% interest rate on dollar forward contracts. Previously, the price was capped at 30%.
The national lender has also asked banks to set at least a 3% spread between their asking and bidding prices for gold sales.
Foreign aid drives for the earthquake response are getting heavy publicity. How much FX will arrive in Turkey through this channel is unknown. So far, $100-200mn has been tracked in relation to the publicity drives, while there is $1.8bn from the World Bank (which will be delivered as project-based).
Also on the horizon, the central bank’s monetary policy committee (MPC) is expected to deliver a rate cut at its next meeting, to be held on February 23. However, Turkey's policy rate and central bank essentially remain idle on the sidelines. The Erdogan administration conducts monetary policy via the so-called macroprudential measures and non-capital controls.
Meanwhile, prices for vegetables of Turkish origin in Georgia have risen following the earthquakes. That master of methodologies, the Turkish Statistical Institute (TUIK, or TurkStat), can help the Georgians mitigate the impact of price increases on inflation. As any Turk will tell you by now, in Turkey there’s official inflation, then there’s the kind you find wreaking havoc with your pay packet.