Cyprus Mail
Cyprus

Surviving the fickle Turkish Lira

Prices are marked in euros and lira in a clothes shop

By Aydin Calik

If you are shopping for a new house in northern Cyprus, you will have to get your pounds ready. A new car? Euros. How about a second-hand one? Again, the Great British Pound.

Or perhaps you are looking to buy a new smartphone, well, they are priced in dollars, along with most electronic goods. Even rents are calculated in pound sterling north of the checkpoints. It is a melting pot of currencies, even though the infamous Turkish lira is the official currency.

Why complicate matters? Wouldn’t it be much easier to just stick with one?

Stability is a major reason for using currencies like sterling. “It helps guard against steep fluctuations,” said Mete Hatay, senior research consultant at Prio Cyprus Centre.

Northern Cyprus needs all the stability it can get. The Turkish lira has lost 20.51 per cent of its value against the euro, 22.17 per cent against the dollar and 10.67 per cent against the pound in the last year alone. The lira has weakened for four years in a row.

“Using multiple-currencies isn’t a problem as such, in a way it kind of tempers the effect of fluctuations,” said director of Sapienta Economics Fiona Mullen.

Foreign exchange office in northern Nicosia
Foreign exchange office in northern Nicosia

“If they were only using Turkish lira, and only importing stuff in euros, then it would be a massive problem.

“But there is a proper funny mix in the north. A lot of people have foreign currency bank accounts as well,” she added.

The bewildering array of currencies in common use is not explained by the desire for stability alone.

Hatay said that the use of sterling basically stems from the colonial legacy of the island.

“The people are used to it, we have strong ties to the UK and many Turkish Cypriots live there,” he told the Sunday Mail.

“Until recently, they were the biggest customers in the property market, and even still, British customers as a whole are the number one buyers,” he added.

Although the link to sterling remains strong, there has been a move away from the pound in recent years with the euro gradually gaining popularity. Most trade between Turkey and northern Cyprus is done in euros and dollars.

“After the checkpoints opened in 2004 and the south adopted the euro in 2008, people began to accepting euros – it makes things easier,” said Hatay.

In fact, most tourist restaurants and shops now price their items in both lira and euros.

While new cars used to be priced in pounds, the euro has taken over due to car imports from Turkey being conducted in euros. Second-hand cars though are still priced in pounds.

And the key property market relies heavily on using foreign currencies to reduce the risk of instability inherent in the Turkish lira’s volatility.

“The fall in the Turkish lira has slowed the market in Nicosia, but not in Kyrenia,” said Hasan Sungur, head of the Turkish Cypriot real estate agents’ association.

“In Nicosia it is generally the locals who buy property, but in Kyrenia for example, the majority of buyers are foreigners bringing in euros and pounds – it doesn’t affect them.”

In fact, Sungur expects 2017 to be a “golden year” for the property market.

But in many other sectors, the plummeting lira has taken a massive toll on people and businesses. And for them, stability as the rationale for using multiple currencies appears no more than a cruel joke.

Clothes shop owner, Selver Kaya, said that the drop in the value of the lira has had a huge impact on her business.

“We pay our rent in pounds and buy our goods in dollars, so at the end of the month we aren’t left with much at all. The cost of keeping the business running has gone up so much,” she told the Sunday Mail.

Lorenza Coffee owner Dogan Ertug said that although demand hadn’t changed much, he complained of a rise in fixed costs due to the depreciation of the lira.

“Though most of our customers are tourists that pay in euros, our costs have sky-rocketed,” he said. “We buy our coffee from Italy in euros, but we are spending much more for the same amount of coffee than we were last month.”

To illustrate the point Ertug took out his receipt for this month’s rent and compared it with last month’s one. “Look, I’m paying almost £130 more than the previous month,” he added.

When asked how it was affecting his prices, he said he was under pressure to keep them low.

“A salad that cost 15 lira one month ago was equal to around €5, now it comes to about €3.50. I’m having to adjust my prices every day,” he said.

Next door, owner of Hoi Polloi cafe/bar, Simon Bahceli, has taken a more pragmatic approach; he has indexed his prices to the euro.

“We try to match our prices to the euro for greater stability,” he told the Sunday Mail.

Although the price of alcohol and coffee have gone up, he said, the euro’s appreciation has made up for it, so he has not really experienced any drop in custom.

Bahceli may be an exception, as kebab shop owner Ali Kaya said he was unable to increase his prices because “customers wouldn’t be able to absorb this”.

“As things stand, we are making a loss,” he added.

Lorenza coffee prices marked in euros
Lorenza coffee prices marked in euros

In an attempt to deal with the steep drop in the lira’s value, the government has taken the rather simplistic approach of raising some taxes and the cost of government fees and increasing the price of fuel, electricity and bottled gas.

Linked to any change in the value of the dollar, energy price increases inevitably have a knock-on effect on basic consumer goods such as bread, milk and vegetables among other things.

The average price of bread has gone up by around 17 per cent. Although the price of the standard ‘somun ekmegi’ bread (1.75TL) remains unchanged, the head of the Turkish Cypriot bakeries association Omer Cirali told daily Kibris Postasi that if the government did not take preventative measures, an increase was unavoidable.

“Bakeries have been forced to up their prices because of increases in the price of flour, electricity and fuel,” he said.

A shopper in the streets of Nicosia painted a rather bleak picture, “Our money is not worth anything anymore. What we earn is set, it doesn’t change. Everything is getting more expensive from gas to milk to coffee to sugar – you name it. What are we going to do?”

Authorities in the north on February 2 set the new gross monthly minimum wage at 2020TL (€505). The net amount minimum wage workers will take home comes to 1757TL (€440) an increase of just €40 or 10 per cent.

According to a January report by the Turkish Cypriot civil servants’ union the minimum amount of money a four person family needs for a healthy diet (hunger limit) as of December 2016 is 1794TL – 37TL (€10) more than the current monthly minimum wage.

Leader of the newly established People’s Party (HP) Kudret Ozersay said there are a number of things that can be done to lower the burden on Turkish Cypriots.

Ozersay said the ‘TRNC’ had a ‘price stabilisation fund’ established for precisely such events and they would use the money to “steady the prices of fuel, electricity and canned gas along with basic consumer goods.”

“We would legislate to bring to zero the VAT rate or at least halve it on specific consumer goods, to prevent the weakening of people’s purchasing power,” the former chief negotiator for the Turkish Cypriot side said.

Ozersay went on to call for the government to resign saying, “this is the only good thing they have left to offer the people.”

Main opposition Republican Turkish Party (CTP) leader Tufan Erhurman said, “yes, it is true that we don’t have many tools to combat fluctuations in exchange rates, but this doesn’t mean we should sit around like accountants simply upping prices.”

Erhurman suggested reducing import taxes and fixing exchange rates for tax collection purposes.

“The government could, with the stroke of a pen, alleviate the burden on the people,” said Sungur.

“In real terms, rents are reaching astronomical figures. Every landlord has to pay a 10 per cent stoppage tax each month. The government could halt this temporarily until the lira recovers and instruct landlords to drop this amount from what tenants have to pay.”

For low-income locals looking to buy property Sungur suggests the government could reduce the cocktail of taxes taken when purchasing a property.

“There are so many taxes, you wouldn’t believe it,” he said.

So far, the government has taken a wait-and-see approach. The ‘deputy prime minister’, Serdar Denktash, has said they cannot do much until the fluctuations end.

“We need to be able to anticipate an end so that we can make calculations as to what measures we can take.”

In reality, there is little the north can do. It is at the mercy of global economic trends over which it has little control. Its use of the lira also leaves it unable to have a meaningful monetary policy.

In the event of a solution to the Cyprus problem, it has been agreed that the north will adopt the euro.

Like the Republic, almost all transactions would eventually be conducted in euros, providing stability and minimising the effects of foreign currency fluctuations.

For now, the economic downturn has not triggered a popular uprising like the 2001 Turkish economic crisis which planted the seeds for the mass pro-solution protests that germinated in 2002-2003.

But whether the Turkish Cypriots can hang on until the economic fluctuations come to an end remains to be seen. If the past is any guide, they could be waiting a long time.



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