In Turkije deed de Turkse centrale bank deze week een wanhoopspoging de lira te steunen. Zinloos èn kansloos. De Lira zakte er niet minder langzaam door weg.

Internationaal lijkt eindelijk doorgedrongen hoe onwerkelijk dom het Turkse monetaire beleid is, en welke kansen dat biedt. Het is volstrekt onmogelijk dat Turkije zo nog anderhalf jaar door kan gaan, zoals president Erdogan heeft aangekondigd te willen doen.

With the lira having lost 40% of its value in just the past 3 weeks (and down almost 50% YTD), now that the market finally realizes just how insane Erdogan has been all along with his intention to keep cutting rates until the mid-2023 Turkish elections…

… and foreign investors pulling their capital from Turkey in a show of defiance to the Erdogan regime – they may return if and when a new, more sensible ruler emerges – overnight the Turkish central bank intervened in the foreign exchange market for the first time in seven years, and in an act of sheer desperation, fought to shore up the plunging lira.

Enfin, oude voorspellingen lijken bewaarheid te zullen worden:

The Turkish Central Bank (TCMB) said in a statement that it took action due to “unhealthy price formations” in the lira, which has been in freefall since President Recep Tayyip Erdogan renewed his push for lower interest rates.
Needless to say, the price formation is “unhealthy” only to the Erdogan regime, the entrenched Turkish state, and Erdogan’s puppet central bank, and quite healthy to short sellers who have long been warning that Turkey is doomed to collapse under the Erdogan dictatorship, and only a currency collapse and hyperinflation has any hope of dislodging Turkey’s batshit insane ruler.

Acties als deze week zullen het onvermijdelijke einde alleen maar sneller nabij brengen:

Indeed, in recent days we have seen sporadic protests against the currency collapse and soaring prices, and Erdogan is scrambling to intercept these before they spread to the rest of the population.
Unfortunately for Erdogan, as Japan, the UK and so many other central banks have demonstrated with their failed intervention attempts, all the TCMB is achieving is blowing through its dollar reserves and ensuring that the currency collapse will come even faster and will be even more acute when it hits.
Sure enough, while the lira initially surged against the dollar after the announcement, climbing as much as 8.5%, it later pared gains. A subsequent intervention by the central bank had a far smaller impact and was quickly faded by the market.

Bottom line: after spending hundreds of millions or even billions, the lira is almost back where it was and every incremental attempt to punish lira shorts and send the lira higher will lead to an even faster collapse in the doomed currency which will not rebound as long as i) Erdogan is president or ii) until Erodgan capitulates and admits that his bizarre economy experiment has been a failure (which won’t happen).

Turkije zit vast tussen een rots en een harde plek. Kennelijk onbewust van waarop men af koerst, sprak Erdogan het journaille toe, dat vragen heeft over de logische onrust die thans plaatsheeft en wat de Turkse regering er aan gaat doen:

Meanwhile, perhaps unaware of the endgame, Erdogan said that the central bank “can make the necessary intervention if that’s needed,” speaking to a group of reporters on Wednesday after addressing his party’s lawmakers in parliament.

In essentie hoopt Turkije op dit moment dat alles wel goed komt als de inflatie zich ‘vanzelf’ stabiliseert. Dat zal niet gebeuren, maar is de enige basis onder het huidige beleid:

The intervention which took place in both spot and futures markets marks a new episode in Erdogan’s latest policy pivot according to Bloomberg. It follows after his latest pledge on Tuesday to keep lowering interest rates until elections in 2023. The Turkish leader also effectively doomed the currency saying that the country will no longer try to attract “hot money” by offering high interest rates and a strong lira. In Erdogan’s base scenario, cheaper money will boost manufacturing and create jobs while inflation eventually stabilizes.

De verkoop van dollars om de lira te steunen bewijst dat men in de kringen van de TCB al in grote paniek verkeert:

That said, the central bank’s surprise – and desperate – decision to sell more from its dwindling foreign assets shows policymakers are turning less comfortable with the lira’s rising volatility than the Turkish president.
It “reflects how serious the situation is,” said Piotr Matys, an analyst at InTouch Capital. “But it’s likely to prove insufficient. Turkey doesn’t have sufficient FX reserves to sell substantial amount of dollars on a regular basis.”

De geschiedenis laat zien wat te verwachten valt:

As Bloomberg reminds us, the last intervention took place in January 2014, when the central bank sold $3.1 billion in spot markets. The move failed to stabilize the lira and less than a week later, Turkey was forced to more than double its benchmark interest rate to 10% in an emergency meeting.

Als Turkije alles verkoopt wat nog dollars waard is, heeft het land een kas van ongeveer 100 miljard dollar.

Looking ahead, the question traders should ask is how long can Turkey buy the currency some respite from the relentless selling. The answer, as BBG’s Ven Ram notes, comes down to the size of the war chest and how willing the central bank is to run down those assets. While the Turkish central bank’s gross reserves add up to $128.5 billion, with $60.5 billion coming from the bank’s swap deals. with some $40 billion in gold (at least in theory; we have a strong suspicion Erdogan and his cronies have long ago sold or syphoned off Turkey’s gold and all that number represents is an empty placeholder).

Maar dat is niet wat het einde zal markeren. Veel Turkse banken (en een groot deel van de grotere bedrijven) hebben grote buitenlandse schulden in dollars, en het wegsmelten van de dollarreserves zal tevens betekenen dat dit deel van de economie  de rente op hun schulden niet langer kunnen dragen. Echter!!

However,  when swaps and other liabilities such as required reserves are stripped, Turkey’s net reserves stand at -$35 billion! Yes, negative.

While the bank has predictably said on many occasions that its gross reserves – the total amount at its disposal at the time – are more important than net reserves, the FX swaps will promptly collapse once counterparties realize they are on the hook for billions in losses as the Turkish economy implodes and unwind the swaps. As such, expect attention to turn to the massive negative number of true net foreign assets.

We krijgen binnenkort derhalve een schoolvoorbeeld te zien van wat je wel en niet kunt doen met een moderne economie, en welke gevolgen dat heeft. De kwestie-Turkije heeft het potentieel uit te groeien tot een tekstboekvoorbeeld van economisch mismanagement, en zo moet u er ook maar naar kijken. Faits vos jeux en Rien ne va plus. Hyperinflatie staat op het punt los te barsten.

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Meer over Turkije (hier) onder Erdogan op Veren of Lood vindt u hier.