Warning from The Economist about Turkish economy: Erdogan threw a blanket over the fire, but it will burn too

The Economist magazine, which has published an analysis on Erdogan’s new “exchange rate-protected deposit system”, summed up what happened with the words: “Erdogan may have thrown a blanket on the fire he started, but the blanket may soon catch fire, too.”

Speaking about the new exchange rate-protected deposit account, the article said that the Turkish economy is not close to riding out the storm. Erdogan’s interim solution has been quoted as giving investors “assurances that the Turkish President is aware of the need to rescue the lira” for now.

The burden on the treasury will increase even more

The economist claimed that Erdogan’s plan is actually an “indirect interest rate hike” indexed to the dollar. The Managing Director of Greenwest Consultancy Dubai, said to the Economist, “You take the current deposit rate and you can get a differential on top of that, which encourages foreign exchange holders to convert to lira. This being the case, the burden on the treasury is likely to increase even more.”

The article says that the Turkish depositors are the ones who have assumed the risk of wild fluctuations in the exchange rate so far, and after that it has been stated that the Turkish taxpayers, i.e. the public, will assume this risk. “The public finances, which have been considered the main pillar of power over the past decade, are now at risk of collapsing,” Capital Economics said on this topic.

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