ANKARA: Turkey’s finance minister says his government is working on steps to help banks and support companies affected by the currency crisis.

Treasury and Finance Minister Berat Albayrak said: “We will make all kinds of preparations, from A to Z,” but did not elaborate.

He said on Tuesday that his government would continue to take steps to stem the on-going currency crisis by “remaining within the rules of the free market".

Albayrak said: “You will see that our lira will become stronger.” He again described the currency crisis as an attack on Turkey and said that a lack of a run on the banks indicated that an alleged conspiracy had been successfully “repelled.”

“Dollar has lost credibility”

The minister promised to protect the lira on Tuesday, after it fell to a record low against the dollar this week, and said the US currency had “lost credibility” because it had been exploited as a political tool.

He expected the lira to strengthen, and that Turkey would continue to take measures within free market rules to decrease foreign exchange risks to companies.

“We will protect the lira, we will march with the lira and the lira will strengthen greatly in the coming period,” he told members of President Tayyip Erdogan’s AK Party.

Albayrak, Erdogan’s son-in-law, was appointed last month following the president’s re-election with new executive powers.

Since Erdogan’s June 24 election victory the lira has lost a quarter of its value against the dollar. Investors have been concerned by his control over the economy, his resistance to raising interest rates to fight double-digit inflation, and an escalating crisis between Turkey and the United States.

Albayrak said Turkey was the direct target of “the biggest actors in the global financial system”, and warned that those escalating the issue to a political level would “pay the price.” “The dollar has lost its credibility,” he said. “In times when the dollar has been turned into a tool for political punishment, we will continue to strongly take steps to protect the lira in international trade.” The lira gained some respite on Tuesday, recovering to trade at around 6.50 to the dollar at 1502 GMT, supported by steps by the central bank to ensure liquidity and measures by Turkey’s banking watchdog to relieve markets.

However economists say the measures fail to address the root cause of the currency’s weakness, and dollar-denominated bonds issued by selected Turkish banks continued to fall on Tuesday, although sovereign bonds steadied.

“This period has shown us areas in which we’re lacking. By discussion with our counterparts, we are walking with determined steps to establish a much stronger structure for banking,” Albayrak said.

“Shorts” rise by $1bn

Short positions on Turkish sovereign debt have jumped by $1 billion since the start of the year while lenders Halkbank, Akbank and Yapi Kredi top the list of most-shorted stocks in the country, data provider IHS Markit said on Tuesday.

Turkey is mired in a currency crisis, with the lira down more than 40 per cent this year amid escalating tensions with the United States, a Nato ally, but Ankara also faces a large current account deficit and stubbornly high inflation.

Confronted by sharp drops in Turkish asset prices, investors have opted to hedge as they seek to protect portfolios against further falls, while others have taken out short positions that would benefit from price declines, IHS Markit found.

Turkish credit default swaps – instruments used to insure against financial turbulence – soared by more than 100 basis points over the past week. Tight bid-offer spreads suggested markets were liquid, the note said.

“There has also been an increase in borrowing of the underlying sovereign bonds, in part the result of hedging CDS (credit default swaps) sold by market makers,” IHS Markit analyst Sam Pierson said in a note.

The current loan balance for dollar denominated issues — a proxy for short demand in the bonds — increased by $900 million in notional terms since the start of the year.

Turkey’s 2043 bond witnessed the largest increase in demand to short a specific issue, with the short balance amounting to $88 million.

On Turkish lira-denominated bonds, “shorts” had increased by $177m. In total, the short balance on Turkish sovereign debt now stood at $1.4bn, a rise of $1bn this year, the data showed.

Stocks are also under pressure, IHS Markit said, citing the build-up of short positions on one of the largest exchange-traded funds (ETF) covering the Turkish market.

Washington imposed sanctions on two Turkish ministers two weeks ago over the trial on terrorism charges of US evangelical pastor Andrew Brunson in Turkey, and last week it raised tariffs on Turkish metal exports.

The top US diplomat in Turkey has called for the cases against an American pastor and others held in Turkey to be resolved “without delay” and in a “fair and transparent manner.” Jeffrey Hovenier, the US Charge d’Affaires, spoke to reporters Tuesday after visiting Pastor Andrew Brunson who is being held under house arrest in the Turkish city of Izmir.

The visit came hours after Brunson’s lawyer appealed to a court for his release and for a travel ban against him to be lifted.

Published in Dawn, August 15th, 2018