First of all, we need to remember the past. As you have read in these bulletins before, the government introduced a banking product called "Currency Protected Deposits" to protect the value of the Turkish Lira and made it mandatory for all banks to offer this product to their customers. On December 20, 2021, Erdoğan said at the exit of a cabinet meeting, "There will be no need for any of our citizens to switch their deposits from Turkish lira to foreign currency because 'the exchange rate will be higher'. He explained the Currency Protected Deposit (KKM) product by saying, "If the Turkish lira deposit income remains below the exchange rate, the difference will be paid."[1] The US dollar, which was traded at 18.43 that day, fell to 13 TL after the announcement. As a result of this statement, many people favored the KKM accounts. However, over time, the decline in the exchange rate reversed and the American dollar started to rise again. As a matter of fact, as of March 31, USD is traded at 19.48 levels.First of all, it is useful to know the following fact: One of the most important indicators affecting the economic voting behavior of the electorate in Turkey is the situation of the Turkish lira against the dollar. In addition, unemployment data also affect voting behavior. Although it may seem a little strange that the inflation rate does not have as much effect on voting behavior as these two data, this is the case. It is clear that this is due to the fact that we are a country that has historically experienced a savings deficit. In addition, the economy is highly dollarized, as confidence in the Turkish lira is highly eroded. Dollarization is accelerating as confidence in the Turkish Lira has decreased and the Turkish Lira has almost ceased to be a savings instrument due to suppressed deposit rates. Knowing this, the Erdogan government is making a special effort to keep the dollar's value at a certain point before the election.This system, which is called the Presidential Government System, centralized everything. Imagine that such a technical decision enters our lives with the signature of the President. Neither savers nor service providers are consulted when making these decisions.&nbsp;It is not even clear what kind of arrangement this is. The type of this decision is a "Presidential Decree", that is, not a law, not a regulation, not a circular. At the moment, you can find a "Presidential Decree" about any issue in the Republic of Turkey. This is both an important example in terms of democratic decay and one of the most important reasons for economic regression. In addition, the number of these changes made with the "Presidential Decrees" is not clear. Because first, a change is made, then the details of that change are explained verbally, and then that statement is published as the "Presidential Decree". Even professional bankers have a hard time keeping up with these rapid changes.We can discuss at length the reasons why the USD/TRY rate has come to this point. Economic developments do not any longer appear as the cause of our problems but of political turmoil. For this reason, we often talk about the political situation and legal predictability rather than technical data.&nbsp;In the next bulletin, we will talk about the future reflections of the burden brought by the KKM to the Treasury, and that the Central Bank's reserves decreased to -41 billion dollars when the swaps were removed. *&nbsp;Enes Özkan – Economist, Istanbul University<a href="#_ftn1" name="_ftnref1" target="_blank" title="" fr-original-style="" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;"></a>

The Freedom Observer

With a decision taken by President Erdoğan and published in the Official Gazette on March 31, 2023, the interest limit applied to Currency Protected Deposit accounts was abolished.  This decision also shows that other regulations will come to prevent the sudden rise of the exchange rate towards the election. 

The Government's Test with Dollar Continues

According to the data announced on March 12, the current account balance in January increased significantly compared to the same period of the previous year and reached 9 billion 849 million dollars, breaking a record monthly. In this way, the 12-month current account deficit rose to $51.7 billion. However, in January of last year, the current account deficit was 6 billion 889 million dollars. On the other hand, foreign trade data, which is the leading indicator for the current account deficit, shows that the foreign trade deficit will increase in February. This indicates that the annual current account deficit will increase even more. At this point, it should be emphasized that the criticisms made against the "Turkish economic model", which has been proved as a great failure, are justified. Because when this model was first announced, it was said that it would have a reducing effect on the foreign trade deficit, whereas the foreign trade deficit increased continuously.When we look at the reasons behind the failure of the model, we can clearly see that these are not economic but political reasons. Because the government thinks that it will lose votes if the necessary conditions are met for the proposed model to be successful. Let's take a brief look at these conditions:For the model to be successful, goods produced in Turkey must become cheaper for customers abroad. To this end, the Turkish Lira needs to lose value at least as much as inflation. Thus, it is hoped that exports will increase. However, the government is making great efforts to keep the USD/TRY exchange rate below 19 TL. This causes the Turkish Lira to become more valuable against other currencies due to the effect of inflation. Therefore, although exports increase, imports increase more than exports. In other words, the most fundamental pillar of the model is collapsing.So why doesn't the government want the dollar to increase in value? The value of the dollar significantly affects the economic voting behavior of the electorate. The dollar price has been seen as a harbinger of inflation for many years in Turkey. Because Turkey has been a country with a foreign trade deficit for a very long time. Since the increase in the dollar will increase the price of goods coming from abroad (especially electronic equipment and vehicles, which have symbolic importance in terms of consumption), the worry of inflation causes a negative view of the government as there will be a decrease in consumption amounts.Record Budget Deficit and Earthquake TaxJust a few days after the record current account deficit, the budget figures for February were announced. Turkey broke another record: Central government budget deficit amounted to 170.6 billion TL monthly. Thus, the 12-month budget deficit rose to 441.6 billion TL. The most striking point was about the interest rates. Excluding interest expenses, the budget, which gave a surplus of 113.4 billion TL in the same period of last year, gave a deficit of 136.3 billion TL in this period. In other words, the central government spent approximately 250 billion TL more than in the same period last year.As it is known, Turkey experienced a massively destructive earthquake. It would not be wrong to assume that some of these expenditures are the money spent due to the earthquake. But it is not possible to say that such a high expenditure was made to heal the wounds of the earthquake. As a matter of fact, when we look at the expenditure items, we see that most of the budget expenditures increase the current transfers and transfers to state economic enterprises.It would not be wrong to say that this deficit will increase even more due to the earthquake. On the other hand, we have not yet fully seen the effect of expenditures that can be considered election investments such as the early retirement law (EYT), the increase in civil servant-retirement salary increases above inflation, which will increase the budget deficit. In the period ahead, we will see the effects of these investments more clearly on the budget deficit. According to the figures given by the Minister of Treasury and Finance, Nurettin Nebati, the cost of expenditures such as EYT, minimum wage subsidies, and electricity-natural gas subsidies to the budget will reach one trillion TL this year. On top of that, the expenses that have to be made due to the earthquake will be added.In all this mess, the government removed some of the tax credits it provided to R&amp;D companies This could be seen as yet another additional tax for these companies. Indeed, in such cases, imposing additional taxes is the primary choice of governments. It goes without a doubt that all citizens should take responsibility to heal the social wounds and eliminate the destruction caused by disasters. As a matter of fact, aid campaigns were also carried out in Turkey and a significant amount of money was collected to be transferred to the earthquake zone. But in an environment where the burden of the early retirement arrangement on the budget alone exceeds 250 billion TL, what is the meaning of the 100 billion TL income that will be provided by the additional tax brought! Unfortunately, Turkey prefers daily political benefits to long-term gains.&nbsp;The interests of the citizens and the government are diverging at an unprecedented pace. In addition, since the country has a fragile economy, the government goes through major rule changes in every disaster. For this reason, the country cannot attract international investments that it needs so much.

The Turkish economy broke records in two important data this week. I wish these data were positive for the Turkish economy. Yet, in a country like Turkey, which has both a current account deficit and a budget deficit, it is not welcome at all. The Turkish economy, which is already referred to as "fragile" in almost all economic analyses, is becoming more and more so thanks to the "Turkish economy model".

Record Current Account Deficit and Central Bank Reserve

⚡️ Lightning Round<ul fr-original-style="padding-inline-start: 20px;" style="padding-inline-start: 20px; margin-top: 0px; margin-bottom: 1em; list-style-position: inside; box-sizing: border-box;"><li fr-original-style="" style="box-sizing: border-box;"><a fr-original-style="" href="https://www.bloomberg.com/news/articles/2022-06-08/poland-lifts-rates-for-ninth-month-to-curb-surging-inflation" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Poland’s central bank</a> increased its benchmark rate by 75 basis points to 6% as expected, pledging to take all actions necessary to ease the surge in inflation.</li><li fr-original-style="" style="box-sizing: border-box;"><a fr-original-style="" href="https://www.bloomberg.com/news/articles/2022-06-08/czech-president-shakes-up-central-bank-by-removing-rate-hawks" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Czech President Milos Zeman</a> appointed three new members to the central bank’s rate-setting board, rejecting second terms for two hawkish members who have shown an aggressive approach to combat the fastest inflation in nearly three decades.</li><li fr-original-style="" style="box-sizing: border-box;"><a fr-original-style="" href="https://www.bloomberg.com/news/articles/2022-06-08/lira-sinks-to-17-per-dollar-as-erdogan-rate-talk-fuels-fx-demand" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Turkish Lira</a> tumbled beyond 17 per dollar (18.40 per euro), extending its losses this year to 22% amid a rush for foreign currency after President Recep Tayyip Erdogan vowed not to allow monetary tightening and instead promised rate cuts, despite inflation soaring to 73% year-on-year.</li></ul>

Aposto World

• <a fr-original-style="" href="https://www.bloomberg.com/news/articles/2022-06-06/turkey-will-continue-cutting-interest-rates-erdogan-says" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Turkish President Recep Tayyip Erdogan</a> announced that his government will not raise interest rates and continue rate cuts, even as inflation soars. The Turkish Lira has depreciated nearly 20% this year, with the annual inflation rate reaching 73.5% as of May, while Turkey’s central bank has kept the benchmark rate at 14.% since December.

Turkish Lira ile ilgili hikayeler