The Turkish government’s quick-fix economic packages has called the continued health of the economy into question and this is reflected in the recent slide in the lira, the head of Turkey’s main business lobby group TUSIAD said on Thursday.
The ruling AK Party government has introduced a series of incentive packages for certain sectors including tax cuts and subsidies and recently announced a new reform package worth around 24 billion lira ($5 billion) ahead of parliamentary and presidential elections on June 24.
Turkey’s central bank raised its top interest rate by 300 basis points to 16.5 percent at an extraordinary meeting on Wednesday in a bid to shore up the ailing currency.
After a sharp rebound late on Wednesday, the lira slid again on Thursday and has lost around 20 percent of its value against the dollar this year.
The lira has been hit by investor concerns about central bank independence after President Tayyip Erdogan vowed to take a tighter grip of policy after June 24 elections.
“Quick fix measures and packages cause a questioning of the sustainability of a country’s economy. The exchange rate rise (lira weakening) shows that this questioning has already begun for Turkey,” TUSIAD chairman Erol Bilecik said.
The government introduced incentive packages and tax amnesties to businesses and subsidies to certain sectors in the recent years to stimulate economy and boost growth.
Turkey’s economy expanded 7.4 percent last year and Erdogan, who faces presidential and parliamentary elections next month, wants to maintain growth by encouraging spending with cheap borrowing costs.
Turkey needs to restore trust in its economy as soon as possible, Bilecik said, adding that the rate hike move by the central bank eased the recent issues in the economy to some extent.
Speaking at the same event, Tuncay Ozilhan, another executive at TUSIAD, said that the central bank should be able to take steps independently.
The lira stood at 4.7625 against the dollar at 1350 GMT, recuperating some of its losses, versus its close of 4.5900.
Separately, Istanbul Chamber of Commerce head Sekib Avdagic said everyone should unite against lira weakening so that the instruments used by the central bank would still be effective.
We should support the rate hike decision by the central bank, Avdagic said in a statement.
“I advise to business circles and producers not to start doing business with dollar if they have not been doing deals with it,” Avdagic also said.