Turkish economy casting shadow over Istanbul mayoral election - analysis

Turkey’s decision to redo the İstanbul mayoral election has discouraged financial markets and placed added pressure on the country’s ailing currency, causing it hit its weakest level since September 24, wrote Brussels-based news site Euractiv. 

Just three days after Monday’s announcement by the Turkish Supreme Election Council (YSK) of a redo of the Istanbul mayoral vote, the lira eased beyond 6.24 against the dollar, its weakest level in eight months, the article said.

The secular main opposition Republican People’s Party (CHP) candidate won victory by a narrow margin the March 31 polls, marking a first for the opposition party in 25 years in the city that is Turkey’s financial hub. The redo for Istanbul is set to take place on June 23rd.

The Turkish lira slid by 30 percent last year when the country fell into its first recession in a decade, the article recalled, pointing out that the ailing currency has lost 16 percent against the dollar this year.

Investor concerns over YSK’s verdict to re-run a mayoral election in İstanbul are driving the latest weaknesses, according the Euractiv, which highlighted that waning confidence is the greatest challenge to revive an economy plagued by high inflation and companies’ foreign-currency debt.

Turkey is faced with nearly two months of certainty as it counts down to the fresh vote in Istanbul, it said, further testing the patience of investors seeking a break with policies that triggered last year’s currency crisis.

According to Edward Parker, managing director overseeing Turkey at Fitch Ratings, which kept the nation’s sovereign rating at a junk ‘BB’ with a negative outlook, the redo will have negative effects as it extends uncertainty.

Euractiv also quoted Wolfango Piccoli, co-president of Teneo political risk advisers, as saying, “The prospects for reforms were bleak before and they are even bleaker now after the cancellation of the mayoral election in İstanbul.”

As part of measures to combat the ailing economy, Turkey’s central bank on Thursday, following the lira’s dive, effectively tightened policy by funding the market through a higher rate, taking additional liquidity steps to bolster the currency.

Meanwhile, the country has rolled up its sleeves to clean up some $13 billion in bad energy loans, remnants last year’s currency crisis, it said.

Bankers, investors, advisers and company executives have told Reuters that Ankara is working with lenders to craft legislation that would protect them from sharp losses as the debt is removed from their books, packaged as funds, and sold to foreign investors down the line.

Meanwhile, foreign investors such as Cerberus Capital Management and KKR have sent officials to Istanbul, as they look to buy cheap distressed loans, as Ankara continues to press Turkish banks to accept its plan, the article said.

Little is known about Ankara’s plans with the exception of what was presented last month by Finance Minister Berat Albayrak, who said ‘’off-balance sheet funds would be created for bad energy loans and, separately, $4.9 billion would be injected into state banks,’’ Euractiv said.

The article cited two separate sources, who said ‘’the government would raise electricity prices by some margin though not as high as banks urged, and the fund-of-funds would be structured in a way that pools the gas and coal plants for a possible sale once the economy and energy demand recover.’’

Turkish President Recep Erdoğan and his son-in-law, Treasury and Finance Minister Berat Albayrak, have gone on record saying the economy is recovering from last year’s currency crisis, which saw the lira briefly hit a record low of 7.22 per dollar.


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