I clearly remember, it was years ago, my phone had suddenly rung while I was walking down the streets of Teşvikiye. A man on the other end of the line said, “Be ready, you are going live in a few minutes”. I hurriedly entered a shop right next to me to avoid street rumble. While I was pretending to looking at the items in the shop, I tried to answer the presenter’s questions.
“Will USD hit 2 TRY?” she asked. I said that it might even hit higher, up to 3 Turkish liras. This sentence has indeed caused some raised eyebrows especially among those who claimed that TRY to USD exchange rate would be 1 lira. I must say that back in those days I had received some pretty hard criticism through social media. “Please don’t” people said. “Well, I am not the one that is doing it” I replied to everyone who criticised me, even insulted me for saying that.
Since that day, USD/TRY rate kept increasing, hitting 2-3-4-5-6-7 TRY respectively. Dollar was 2.5 TRY even 5 years ago from now. If 85% of a country’s exports consist of raw materials, intermediate goods and investment goods, if its private sector has a huge pile of debt, if its public resources are spent to mega projects without any prioritization, if it has go no proper domestic and foreign policy, the exchange rates in that country will be always doomed to go up.
As we look back, we remember Turkey had countless opportunities to improve its fragility against external impacts. Anytime I attempted to remind people of these missed chances, that government had spent its resources unwisely, I got blamed for “not seeing the big picture”.
“What needs to be done must be done…”
Turkey made every effort to prevent USD/TRY rate from going any further than 7.00. But all the effort and the money spent on achieving task were all in vain, because now we will see exchange rates negatively affecting inflation as well. So, this being the case, CBRT has downgraded its inflation target to 7.4% in a brave attempt so as to lower interest rates. But this play is about to lose its credibility.
It must be understood that we are scaring away the investors as we keep saying that we stand strong and mighty as a country. I’m so tired of repeating that. We have to realistic now. CBRT’s reserves are in fact at negative levels, when we subtract the amount added to central banks reserves through SWAP. But, as some people, who have nothing to worry about, keep insisting that Turkey doesn’t need external funds, government fails to take the right action.
Exchange Rates might go up and down, but the trend will always remain upwards because Turkey always failed to take a strong step to change its economy’s ill fate, I mean its fragility against external effects. Instead, government chose to focus on construction, mega projects, Canal Istanbul, large airports and all other types of activities that bring a lot of money, yet hinder economic and social development.
Thanks to two very important reasons USD/TRY stopped going any further: first, Turkish people’s constant faith in Turkey, and second, foreigner’s undying trust in Turkey. However, don’t let these two fragile facts divert us from our path. If we keep on going like this, without taking the necessary steps, we’ll lose more than we won.