The markets need to see what lies ahead

The markets need to see what lies ahead

Despite the decision to bring the elections forward, the markets cannot clearly see what lies ahead.

The market participants have question marks over the impact of the recently announced measures that are likely to increase the budget deficit on macro balances while they are also asking whether inflation will come down and they are wondering what measures will be announced after the elections.

Last week, I spoke with a number of bankers, including senior managers, and saw they are demoralized. They said that with the snap election decision they had expected an atmosphere to emerge that would have helped them to see what lies ahead but a climate of uncertainties has emerged instead.

Apparently, measures announced ahead of the elections, which will boost the budget deficit, add to their uneasiness because the government had not taken such steps before. The bankers said they were expecting more of such statements both from the governing and opposition parties. They anticipated that the impact of the measures that would deeply affect the economy after the elections would be felt before the vote.

Among the issues that irk bankers are the Halkbank case in the United States and a possible fine and potential embargo that may be imposed because of Turkey’s purchase of the S-400 missile system from Russia. They said bad news have continuously been coming from the U.S. and added that those risks could materialize before or shortly after the elections. The bankers are worried that the banking industry may suffer from the FX burden and its integration with the global banking system may be affected.

All those fears weigh on the already destabilized economic balances and the FX rates, the bankers noted. They underlined the importance of the “inflow of foreign financing both for Turkey and the banking sector,” and said uncertainties over all those issues should come to an end.

Restructuring

The bankers are also increasingly worried that the number of large companies that have applied for the restructuring of their debts are on the rise. A senior manager from a bank said those were not very important problems and the current banking structure allows such restructuring. “The crucial point here is whether we will be able to keep securing foreign resources and whether a climate in which those restructured debts will be repaid will be created,” the banker said.

The market participants have been discussing whether inflation and the current account deficit will exceed expectations after the recent measures announced by the government. The bankers also underlined that the situation necessitates a rate hike but they question if the authorities will deliver the hike in a timely manner. They are also worried that if the new administration that will emerge after the elections will make the required radical decision.

I also observed people are worried about the capabilities of the administrative structure and human resources that need to counter the possible economic problems. There is concern over the competence of government executives who are needed to solve big problems while another worry is that the banks now have fewer executives with crisis management experience. Thus, people have questions of whether the process can be handled properly if things go wrong.

To summarize, whatever the result of the upcoming elections will be, concerns over the future of the economy are growing. Those who bid to rule the country should make statements that will help the markets see what lies ahead.

Erdal Sağlam, hdn, Opinion, Turkey