Unfortunate timing for a crisis with the US

Unfortunate timing for a crisis with the US

We can say that the ongoing visa crisis with the United States arose at an unfortunate time. It is certain that the economy will pay a heavy price if the crisis is not resolved at once, or if it gets more complex.

It was widely known that U.S.-Turkey relations were going through a rough patch lately, but no one expected a visa ban. That’s why the news that came late Sunday night deeply shook the markets.

The fact that the statement was made on a national holiday in the U.S. - Columbus Day - mounted concerns.

Market experts suspect the problems may have stemmed from a situation emerging outside of the problems that are being exposed to the public.

They say the visa ban is a very harsh move and that there could be more to its backstory than just the arrest of a U.S. personnel. That’s why we can say the panic mood in the markets is likely to stay until what needs to come to light is revealed.

For the developments that might follow, market experts have various hypotheses. Some say a way to solve the problem seems more likely as both sides cannot risk a worsening of the crisis and that improving bilateral relations would benefit both parties. Those who defend such notion expect the crisis to cool down within a week or two. There are also those who say it is surprising that the crisis shook the currency levels to this extent. There is a belief that the hard currency movement is due to the low volume in the Asian markets, which are the first to open.

Yet some foreign market experts expect the Turkish Lira to lose value and the impacts of the political crisis to extend to a longer period of time.

Meanwhile, it seems the crisis of the lira does not seem to act as an epidemic on the global scale. Market experts who say this is a political risk characteristic to Turkey underline the emerging country currencies are not impacted by these developments.

 

Central Bank should keep its firm stance

Experts who see an optimistic future for this crisis argue “Turkey is a NATO country, thus the problem would not go on for long.”

At this point, the question on whether or not the crisis’ impact on the markets is manageable becomes more pressing.

While the Central Bank states that this is a temporary crisis, the developments are closely monitored and that they have the capacity to follow up with the necessary decisions, almost all market experts say, “The Central Bank should keep its firm stance in order to prevent a permanent damage.” There are also those who expect the Central Bank to raise interest rates in order to keep the mentioned firm stance.

Those who have been following this column know we were anxious about an incoming political crisis. In my previous article, I wrote about how the projection on the currency increase was estimated to remain low when the Medium Term Program goals were being determined. As I wrote in the article prior to the crisis, I reminded readers that we had already made it to the 2018 average currency. But we saw just how huge of an impact this crisis has had on the currency levels. Forget the average for 2018; we already made it to the 3.90-lira figure that was aimed for the end of the year.

We hope this political crisis will be solved at once and the markets will relax. Hopefully, this is not the beginning and that the country and the economy will move forward without getting much damage. We were always worried about the impacts of an economic crisis surfacing at a time when the macro balances started to deteriorate and when Fed would increase the interest rates.

Hopefully, we will not have to go through the economic periods that we have feared for so long.

Opinion, Erdal Sağlam, Turkey