Turkey Country Report May22 - May, 2022

May 6, 2022

Ukraine War: Ukraine was still resisting Russia's invasion as of May 2, with parts of the country turned into a slaughterhouse. See the live map here.

Since the Russian invasion of Ukraine launched on February 24, more than two months have already passed. The worry is that Ukraine will become the new Syria, a country that has been a battlefield since 2011.

With Brent oil and commodity prices, in general, stabilising of late, with the wavelengths in the fluctuations becoming smaller, the war in Ukraine is becoming a new normal.

But relative stabilisation (compared to the wild rides seen in February and March) has been occurring at significantly higher prices, while the stress in commodities directly related to Russia or Ukraine (such as sunflower oil, natural gas) continues.

The FAO food price index extended its record in March at 159, up 34% y/y.

As of May 2, Brent was up 58% y/y to $105 while the Bloomberg Commodity Index (BCOM) was higher by 43% y/y at 128. The USD/Turkish lira (TRY) pair was up 80% y/y to 14.9.

So far, the overall impact of the war on the fortunes of the Erdogan administration is not yet clear. There are just about as many positives as negatives.

Turks have been hit by booming commodity prices. Russians are taking their wealth to Turkey to avoid sanctions. Some companies in Turkey are buying cheap, discounted oil from Russia.

Since March 4, the Erdogan regime has been aiming to keep the USD/TRY pair below the 15-level. It is unknown how much is flowing into the central bank’s account from the lira deposit protection scheme and exporters/tourism companies, while the reserves are declining.

The Turkish central bank upped the share of FX revenues that exporters are required to sell to the national lender to 40% from 25% while tourism companies are also obliged to sell 40% of their revenues to the central bank now.

Global markets are focused on the new phase of the Fed tightening that will arrive in May, which will couple with the traditional "sell in May, go holiday" sell-offs in the month. All the world's central banks, except for Turkey's, are hiking their policy rates to get ready for this phase.

Turkey, which cannot use its policy rate instrument due to President Recep Tayyip Erdogan’s leash on the central bank, is instead trying to introduce some "macroprudential measures" and non-capital controls.


Turkey’s 5-year credit default swaps (CDS), meanwhile, surpassed the 600-level on April 29 while the yield on the Turkish government’s 10-year eurobonds is in the 8%s.

On April 18, Erdogan launched an offensive against the pro-Kurdish terrorist organisation PKK in northern Iraq.

In the spring, when the snow melts in the mountainous region, the Turkish state and the PKK traditionally launch a season of bloody attacks.

The PKK, in response to Erdogan’s latest offensive, appear to have carried out two small bomb attacks, with one in Bursa on April 20, and one in Istanbul on April 21. One casualty was reported in Bursa.

So far, no one has raised much concern about the latest bloodletting. The Turkish state, meanwhile, has apparently censored local media. Western media have shown little interest.

Whether a full-blown bloody summer (as was the case in 2015) or a regular bloodbath is now at hand is the question.

Turkey’s Supreme Election Board (YSK) announced that all of the country’s election boards will be renewed by July 6 in line with recent amendments made to the election law.

Erdogan will (indirectly) choose the heads of the provincial electoral boards. If he intends to aim for another election fait accompli, the provincial electoral boards will be ready as of July 6 for a snap poll (by law an election must take place at the latest by June 2023).

This route means going for a harder dictatorship, just like Alexander Lukashenko in Belarus.

At the moment, the West is openly supporting Erdogan once more. The masses everywhere are intimidated by the war. The policymakers are not in need of hidden games.

If some sluggard such as Turkey’s main opposition leader Kemal Kilicdaroglu or the candidate he endorsed in the 2018 presidential poll, Muharrem Ince, turns out to be his rival for the presidency, Erdogan can make sure of managing reactions at home too.

For Erdogan, his most serious rival is his health. Unless an ambitious and popular possible candidate such as Istanbul mayor Ekrem Imamoglu—who nailed Istanbul in the 2019 local elections to Erdogan’s chagrin—is nominated to stand against them.

Then we might wave a good-bye to Erdogan, who could try his luck fleeing somewhere abroad prior to landing in jail.

Turkey remains exposed to turbulent times in the period ahead.

Ziraat launched the spring syndicated loan renewals season for Turkish banks. Akbank followed.

Turkey’s energy ministry on April 8 held tenders for the construction and operation of three solar plants with a combined installed capacity of 300 MW (100 MW each) under the YEKA GES-4 (Renewable Energy Source Areas, Solar Power Plants-4) round.

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