Turkey: “WORRYING” rise of the US Dollar brings new records

As hot money exits from emerging market currencies, the worrying rise of the dollar against the Turkish Lira continues. The greenback surpassed 1.90 lira for the first time on Tuesday. The surge has caught Turkish corporations off guard, as they carry a huge foreign currency debt load

Many traders at Istanbul’s ‘bourse on foot’ carry three mobile phones to make nearly 100 phone calls every day, traders there say.

Daily dollar sale auctions by the Turkish Central Bank have apparently failed to limit the rise of the greenback, which broke a new record of 1.90 Turkish Liras on Tuesday. The appreciation of the U.S. dollar and the euro against the lira comes amid market turmoil over the eurozone crisis, resulting in a massive exit of foreign capital from emerging market assets.

The U.S. dollar was trading just below 1.90 lira on Tuesday, while the euro, which has been depreciating against the dollar itself, was above 2.51 liras. The rise of the greenback remained unfazed by the Central Bank selling $140 million at an average price of 1.8958 liras. The Central Bank, which received a high demand of $375 million, has sold more than $3 billion since the start of August but has failed to limit the depreciation of the Turkish currency.

The lira’s demise not only raises the threat of inflation, but also sounds alarm bells for Turkish companies that are indebted in dollars or euros.

According to data for the first quarter of the year, the net foreign currency deficit of Turkish companies is near $111.8 billion, rising 35.4 percent compared to last year. The short-term net foreign currency deficit of corporations stood at $9.16 billion, increasing by a massive 188 percent.

The deficit was under $20.5 billion in 2003 and has increased every year since. The biggest annual jump, however, has been seen in the past few years.

Massive depreciation

Though a relief for exporters, the appreciation of the dollar and the euro is a direct threat to corporations that are indebted in foreign currencies. Since the start of 2011, the lira has depreciated by 23.6 percent against the dollar – the greenback was trading at 1.536 in January. The Turkish currency shed 21.6 percent of its value against the euro in the same period.

As of March, foreign currency liabilities of Turkish corporations have increased to $194.7 billion, rising 23.1 percent compared to last year.

The data show that since 2003, the foreign currency risk of corporations has surged by $91.3 billion, or 446 percent.

“We [recently saw] an annual current account deficit of $75 billion in a $732 billion economy – 10 percent of gross domestic product is the current account deficit,” economist Selim Somçağ said.

According to Somçağ, the lira’s depreciation will continue until the gap is closed, and Turkey is bound to “pay a heavy price.”

“Global liquidity, which mostly consists of dollars, will decrease,” Somçağ said. “Currently, we see a shift in this liquidity, which goes back to its homeland. That’s why the dollar is surging.”
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“Turkey spent the income it did not have,” Somçağ said. “[Now], we will have to save and decrease our life standards.”

October 4, 2011
SOURCE: Hürriyet Daily News