Turkey’s lira lagged most emerging-market currencies on Tuesday amid debates in the government on foreign-exchange policy, while Brazilian assets were being closely watched after outflows on fears of political interference in state-run companies. By 6 pm Istanbul time, dollar/TL had traded up to 7.09-10, losing 0.87% for the day. The Borsa Istanbul main index, too, withered (down by 1.89%) in the ill winds of a nasty tussles between AKP and the position about former economy czar Mr Berat Albayrak’s controversial legacy.
Markets showed some concern over the government’s defending policies of Berat Albayrak, a former finance minister and President Tayyip Erdogan’s son-in-law, that saw a sharp decline in foreign exchange reserves. Some saw that as a sign that Albayrak could make a return.
“The story that Albayrak could return in some capacity sinew and one that investors will be monitoring closely,” said Piotr Matys, senior FX strategist for central and eastern Europe at Rabobank.
But he added that the main source of support, such as high interest rates and commitment to maintaining tight monetary policy, remain intact, and the day’s move could be a correction after the lira’s impressive run over the past few months.
In Brazil, news that President Jair Bolsonaro fired the head of state-run oil company Petrobras roiled markets, which may have amplified Turkey’s currency volatility. Investors took the move as a sign that some of Bolsonaro’s market-friendly initiatives may be rolled back.
Brazilian markets had their worst day since the autumn. The Bovespa index lost almost 5% with state-run companies leading the declines. Petrobras finished the day down 21%.
Emre Peker, a director at the Eurasia Group political consultancy, said the spat comes at a fragile time for Erdogan, who has seen his support waver in recent public surveys as a result of economic hardship and rising food prices across the country.
“When I look at both the lawsuit and Erdogan’s comments, I see a typical attempt to deflect blame and change the conversation with these conspiracy theories, and allegations and unfounded links to terrorism to try and absolve the government of responsibility,” Peker told Al-Monitor.
Peker said much of the nation’s recent cash inflow is speculative and foreign direct investment continues to lag, as in other countries, due to the pandemic.
Such dynamics, Peker said, have been pushing Erdogan to seek domestic political wins to bolster voter support ahead of scheduled 2023 elections, in which he’ll need at least 50% of the popular vote to extend his 18-year tenure in power.
“It’s not a good picture for Erdogan,” Peker told Al-Monitor. “He knows this and every other week we have a new topic of discussion to try and divert attention, to keep the public occupied and to find the magic formula that will once again push his support above 50%.”
Turkish assets are also hurt by soaring Brent oil prices and rising US long bond yields. As a rule thumb, a $10/barrel jump in Brent widens the current account deficit by $3.5 bn per annum, which is an equation global investors must be monitoring carefully. Turkey’s maturing foreign debt payments soared to $182 bn by year-end 2020, as the private sector began to re-leverage in anticipation of a strong economic rebound. Higher US bond yields raise the cost of refinancing foreign debt.
The Albayrak debate is likely to fade way soon, as with all the diversionary tactics of AKP had over the last few months, but it is too early to contemplate a “buy-the-dip” scenario, as Turkey and US head to a major clash over S-400 missiles and US’s pro-Kurdish policy in Northeast Syria. Talk of more CAATSA sanctions could lead to another shake down in the TL in March.
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