Turkey’s economy has been affected by the failure of the ruling AKP party to form a coalition government with the opposition which led to the announcement of a new round of parliamentary elections on November 1 coupled with the ongoing clashes with the Kurdistan Workers’ Party (PKK). There have been growing concerns over the depreciation of the lira after it lost around 8% of its value within a week. Turkey is particularly vulnerable to foreign exchange fluctuations because it depends on cheap capital inflow to finance its gaping Current Account Deficit (CAD) and the huge amount of dollar-denominated debts owned by both the public and private sector is also a crucial factor.
Economy Minister Nihat Zeybecki tried to reassure the population stating that “Turkey is a powerful country.” In an attempt to downplay criticisms of the ailing economy he said critics claim “a crisis will emerge if this or that doesn’t happen. It doesn’t emerge, friends. For God’s sake [believe me]; I’m telling you.” He was speaking at an official ceremony in Izmir on Friday.
At the beginning of the year, Zeybecki said the rise of foreign currency against the lira will not last long and “cannot damage the economy” but on Thursday, the lira slipped to 3.0031 against the dollar in an all-time low and there are fears that it will continue to fall.
Turkey’s total external debt has surged by $114 billion over the last month and by $259 billion since January.
The ruling AKP party is hoping to win an outright majority in the upcoming elections but it is unclear if that will be enough to boost the confidence of the investors as clashes with armed groups in Iraq and Syria continue.