Roundup: Turkish lira tumbles on worries over election, political meddling

The Turkish lira slumped into a new low on Wednesday against the U.S. dollar, becoming the worst performing currency among emerging economies amid fears of worsening unemployment, budget deficit and political instability.

The Turkish lira dropped to a new record low of 2.73 to the dollar, losing its value at some 17 percent this year.

According to Erol Karayzici, a finance expert, the drop is due to looming uncertainty in the upcoming elections that will be held on June 7.

"How will be the distribution of the seats in the (next) parliament? What type of government will it be? What would be the dominant philosophy in the (new) economic management team?" He asked, adding that the market is searching answers to these questions.

The uneasiness among investors about the prospect of the shape of the next government in Turkey is well-founded given the fact that various polls suggest the ruling Justice and Development Party (AKP) will have a hard time in securing a single party government.

The polling company Metropoll announced on Tuesday that the ruling party's vote dropped to 41.7 percent in its recent survey, suggesting that it will likely receive 261 seats which is 15 seats short of 276 that is required for the single-party government.

The lingering concerns over political interference by Turkish leaders in the Central Bank's Independence and uncertainty over the next economic management in Turkey have also taken toll on lira.

The central bank's statement on Tuesday, saying that it may take measures to support the currency at an April 22 meeting on monetary policy did not have much impact on markets. The lira has continued bleeding against the dollar.

The bank, having faced a strong bashing by outspoken President Recep Tayyip Erdogan in recent months, may not have the courage to raise interest rates or tighten the liquidity in order to stabilize the currency ahead of elections.

The direct intervention via selling off reserves in foreign currency is also less likely given the fact that it may not be effective at all and that reduce precious reserves.

INFLATION, UNEMPLOYMENT AND DEFICIT WOES

The relatively high interest rate in Turkey in contrast to other emerging economies also spells trouble for Turkey, according to analysts.

Economist Seyfettin Gursel said, "I think arguments over the interest rate, which have dominated the economic agenda over the last months, have played a role in stoking inflation."

The soaring unemployment rate in Turkey has also contributed the depreciation of lira against the dollar.

The government statistics agency announced on Monday that the unemployment rate rose from 10.9 percent in December to 11.3 percent in January, the highest since April 2010. The youth unemployment rate increased more, reaching 20 percent.

On Wednesday, another troubling news for Turkey was announced by Finance Minister Mehmet Simsek who said the budget deficit in March was 2.53 U.S. dollars despite the fact that revenues increased by 8.5 percent.

Ramazan Tas, director of economy at the Center for Legal, Ethical and Political Studies (HESA), said the budget deficit has soared by 258 percent year-on-year.

"That shows the fiscal discipline was discarded in favor of populist policies ahead of elections," he said.

Tas predicted that economic crisis is knocking on doors of Turkey as it was the case in 1994.

Among other worries for Turkish economy included high current account deficit, plummeting exports, high private debt stock in foreign currencies.

PRESSURE ON BUSINESSES

On Tuesday, the Turkish president targeted Tusiad, one of country's most influential business groups, which added more worries about government pressure on businesses in Turkey.

The president's harsh remarks came after the chairwoman of Tusiad warned that Turkey's economic success story had been deteriorating for a while.

The government also targeted Bank Asya, the largest Islamic banker, and Isbank, the largest private lender in Turkey, as part of what economists said unwarranted attacks on private businesses.

Turan Bozkurt, an economist, said the takeover of the management of the Bank Asya has prompted huge concerns among banking industry.

"The banking industry has been suffocating due to political pressure," he warned. Enditem