Turkey Country Report Jun22 - June, 2022

June 7, 2022

In Turkey, there is a hue and cry, but not much sense is spoken. People are angry and on edge due to the sum of the situation of the country. Everyone agrees with the consensus that Turkey is exposed to turbulent times in the period that lies ahead.

The regime has shown signs of aiming to fuel tensions. However, by now it is too weak to keep dominating the country’s agenda with inane issues.

Even Turkey’s hapless main opposition leader Kemal Kilicdaroglu, the Republican People’s Party (CHP) chair, is able to nullify the regime’s attempts at setting the media agenda.

Right now, Kilicdaroglu is steering that agenda for the first time in his life. Not that most of it isn’t drivel.

Political assassinations, terror attacks, some other bloody moves (as seen in the June-November 2015 period), closure of the pro-Kurdish Democratic Peoples’ Party (HDP) (the HDP has reserve parties, this move will not make sense), the seizure of the Istanbul Municipality, the jailing/banning from politics of Istanbul mayor Ekrem Imamoglu – these are among expectations for the period ahead.

In foreign politics, Turkey’s president Recep Tayyip Erdogan is rather noisy again. No one, except the mainstream media, takes him seriously.

He cannot block anything in Nato. He still wants photoshoots with Joe Biden. Biden’s told Turkey it’s a no-go. He fails to invite Erdogan to Washington. Erdogan will now seek a photoshoot at the next Nato summit, to be held in Madrid on June 30.

Erdogan cannot attack the Kurds in Syria without US permission. The trick here is that there are two small enclaves, namely Tal Rifaat and Menbij, on the western side of the Euphrates river (See the map here). This territory is under Russian patronage. Erdogan is seeking permission from the Putin regime to attack Kurds there. This would mean no attack on the US region. The Western media and governments would make a lot of noise but it would mean no cost for the Erdogan regime. Still, it all depends on Russia’s permission.

The Greece issue, meanwhile, really makes no sense.

Erdogan actually enjoys the support of the major countries in the US-led Western bloc. Everyone knows it is simply Erdogan’s style to act like the West’s spoilt kid.

Erdogan’s high-stakes insults levelled at Athens and others have no meaning beyond offering up clickbait for the press. His foreign minister even yelled at his Swedish counterpart in a meeting two weeks back.

But the Erdogan regime knows full well that Sweden will not move an inch from pragmatism even should Turkey’s top diplomat spit in his Swedish counterpart’s face.

Net-net, there’s too much noise but no significant developments. The Turks await their fate. Will Erdogan delay the elections, declare another fake victory and fight or flee?

The war in Ukraine is a new normal now. But relative stabilisation in commodity prices (compared to the wild rides seen in February and March) has occurred at significantly higher prices, while the stress in commodities directly related to Russia or Ukraine (such as wheat, sunflower oil, natural gas) continues.

On May 9, the USD/TRY pair broke the 15-barrier. By May 16, the regime was defending the 15.50-level. By May 24, it was defending the 16-line. Since then, it has been defending the 16.50-line.

So, what we have could be described as an undesirable but still controlled devaluation. All eyes are on where the exchange rate might stabilise.

Unknown is how much is flowing into the central bank’s account from the lira deposit protection scheme and exporters/tourism companies, while the reserves continue to decline.

If the Erdogan regime can manage to get through May, it could enjoy a less troubled two-month period until the summer liquidity dry shake-up in August. This does not mean a shift in the lira’s secular trend to the north pole.

Some relaxation is already observable in the yield on 10-year US Treasury papers and in the USD index (DXY). However, the current situation is a long way from normality. Don’t dispense with the idea that a colossal meltdown could be ahead.

An uninterrupted decline in the USD/TRY would also be no surprise under the current global and domestic dynamics. The world, led by the Fed, is tightening monetary conditions (the supply of the numerator of the USD/TRY is declining) while the Erdogan regime is pumping in more loans (the supply of the denominator is increasing).

Rapid grocery deliveries player Getir intends to axe 14% of its staff globally due to rising global inflation and costs. The liquidity boom during the pandemic also boosted tech start-up valuations. The upcoming period will also be a stress test for the tech industry.

Turkey’s energy ministry delayed the YEKA GES-5 (Renewable Energy Source Areas, Solar Power Plants-5) tendering round.

On May 31, the ministry collected initial bids under the YEKA RES-3 (Renewable Energy Source Areas, Wind Power Plants-3) round.

On June 21, it will collect initial bids under the YEKA GES-4 round.

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