ISTANBUL BLOG: Erdogan pours more lira into wretched economy

ISTANBUL BLOG: Erdogan pours more lira into wretched economy
Finance minister Berat Albayrak: A corporate communications grandstander who's not good at public relations.
By Akin Nazli in Belgrade June 13, 2019

Turkey’s Erdogan administration is at it again—pouring more credit into the country’s embattled economy to support consumption and fend off a double-dip recession.

Banking watchdog BDDK on June 13 eased credit card payment regulations. It raised the maximum number of instalments on certain purchase categories and cut the minimum of an outstanding credit card balance payable each month to avoid late payment fees to 30% on all card limits, from up to 40%, according to its statement published in the Official Gazette.

Previously, the minimum amounts payable monthly were 35% on debt on cards with a Turkish lira (TRY) 15,000-20,000 limit, 40% on cards with a limit of more than TRY20,000 and 30% on cards with a limit of up to TRY15,000.

The maximum number of credit card instalments payments was lifted for purchase categories including travel expenses, furniture purchases and tax payments.

Turks’ credit card transactions grew by 18% y/y to TRY183bn in Q1, according to the latest data from the Interbank Card Centre (BKM).

Loans showered on SMEs
On June 13, pro-government daily Sabah reported that the overall amount to be showered on small and medium sized enterprises (SMEs) by recently announced Treasury-backed loan packages totalled TRY105bn, including the latest TRY25bn announced on June 12 by banking association TBB. SMEs are a crucial part of Turkey’s economy, given that there are around 3mn of them.

The fresh public purse stimuli will again be provided under the Credit Guarantee Fund (KGF).

The KGF provided TRY250bn worth of stimuli to Turkey’s SMEs in 2017. Loan volumes under KGF guarantees rose to TRY372.5bn as of end-April from TRY317.3bn as of end-Octoberaccording to the latest data available on the KGF’s official website.

The KGF had TRY318.3bn of capital at end-2018 while the Union of Chambers and Commodity Exchanges of Turkey (TOBB) and the Small and Medium Enterprises Development and Support Administration (KOSGEB) retained the largest KGF stakes of 29.2% each, according to the fund’s latest activity report.

Some 27 local lenders each had a KGF stake of 1.54% with each bank’s participation amounting to TRY4.9bn.

Allow me to ‘encourage’ you
Even if in reality the Turkish government has no money to back up these credit splurges, it does have the political authority to persistently ‘encourage’ local lenders to somehow keep Turkey’s consumption-based, debt-fuelled economy alive—even if came spectacularly off the tracks last summer with a currency crisis that ushered in a painful recession and left swathes of the country’s corporate sector wondering how they were ever going to repay their FX debts with their depreciated lira earnings.

When the good old days were purring (and you can argue all you want over how much of it was a ‘debt-fooled’ mirage), Turkey’s banking industry was seen as one of the nation’s strengths, along with the fiscal metrics. However, both strengths have been eroded since 2013—and at an escalating pace.

Market observers are currently focused on what share of the latest stimuli packages will come through in the form of new lending and how much will be in the form of restructuring non-performing loans (NPLs).

Still lots of downside to GDP”
“My question on seeing this is how much of this is net new lending versus rollover of previously extended loans that are coming due. For there to be another positive growth impulse and destabilization of the Lira, the former is of greater concern,” Robin Brooks of the Institute of International Finance (IIF) said on Twitter after the latest TRY25bn loan package was announced.

“The median peak-to-trough fall in real GDP for EMs that have BoP sudden stops similar to Argentina & Turkey is -7.0%. Turkey has so far done only -2.8%, Argentina a bit more excluding the Q2 '18 drought. There is still lots of downside to GDP unfortunately, especially for Turkey,” Brooks also said.

No joking, the government’s latest moves with credit cards and loan packages are simply—and pitifully and plainly inadequately—described as evidencing “attempts to strengthen domestic consumption to overcome the recession”. But how long can the Erdogan regime—especially if president’s son-in-law and finance minister Berat Albayrak gets booted up and turns in another clumsy performance explaining thin plans—keep this ball in the air?

The inflation figures are under the control of Turkish statistics institute TUIK, while the USD/TRY rate is strongly manipulated via public lenders. That’s pretty useful to the officials, but any proper analysis has to question how sustainable it is to keep the state’s fingers in local lenders’ tills to keep pumping money into the domestic market and back the central bank’s crumbling FX reserves.

Rapt attention to run-up
But bugger the long term, the government right now is paying rapt attention to the run-up that will take us through to the June 23 Istanbul revote. President Recep Tayyip Erdogan, who of course himself rose to prominence as mayor of Istanbul, urged the elections watchdog to cancel the end of March defeat in the original vote that so humiliated him and his ruling AKP party, and lo and behold they did so. For a strongman, to lose once may be regarded as an unfortunate fumble, but to lose twice looks like carelessness. By hook or crook, Mr. Executive President surely has to win this time around, those who complain about fiscal foolishness aimed at bagging votes be damned.

Meanwhile—and how boring this interminable and repetitive row has become—Ankara and Washington’s stalemate over Erdogan’s stubborn insistence that he is going to deploy Russian S-400 anti-aircraft missile systems continues to hog the headlines day by day. Turkey’s leader can at least thank the US secretary of defence for the rather generous July 31 deadline tagged to his ultimatum over scrapping the missile move—it falls a good time after the revote. And Erdogan will have the chance to shoot the breeze with Donald Trump in Osaka, Japan, during the June 28-29 G20 summit, so there is some prospect of the two wheeler-dealers coming up with something—whatever the Nato defence establishment says.

So, if Erdogan and his flunkies can manage to keep the lid on the S-400 blowup at least until the AKP’s man, ex-PM Binali Yildirim is made mayor of Istanbul, they’ll know that they have no other urgent deadlines that can take a wheel off—though, never one to eschew an opportunity, Erdogan can always create new ones ahead of July 31 if he fancies his chances of landing on his feet.

Don’t write off the chances of early elections being announced, get ready to stomach an S-400 sequel and remember, especially if you’re a US pastor or a German journalist, your incarceration can always prove handy.