Behind the scenes: Recent Dollar surge and decoding Şimşek’s statement

 

On March 11th, Monday, the Turkish Lira hit a record low against the US dollar; at one point, 1 dollar surpassed 32 lira. Similarly, the British Pound exceeded 41 lira, and the Euro went over 35 lira, prompting a statement from the Treasury and Finance Minister Mehmet Şimşek.

There was no apparent reason for this. For instance, there was no conflict environment in Türkiye’s foreign relations, especially with the US. On the contrary, Fidan, who made a joint statement with the his US counterpart Antony Blinken in Washington, had mentioned the possibility of opening a new page with the US. While Pope Francis called for Ukraine to sit down with Russia, he was referring to President Tayyip Erdoğan’s invitation to peace talks.

Fitch had upgraded Turkey’s long-term foreign currency debt rating from B to B+, also raising its outlook from stable to positive. The Central Bank’s reserves were in good shape. The elections to be held on March 31 is local elections, there is no uncertainty caused by a possible change of central administration.

So, what was behind the continuous rise in the dollar since last week and the lengthy statement by the Treasury and Finance Minister Mehmet Şimşek?

Rumors

Capital circles in Istanbul believe that the rumor circulating in the market since last week, “Erdoğan will dismiss Şimşek after the election,” has a role in this increase.

It’s possible to observe that this rumor has reached foreign investment experts who came to Turkey to sniff out pre-election atmosphere and make post-election predictions. I observed that some experts I met in recent days also asked whether Şimşek would stay or leave after the election. Moreover, those asking this question didn’t consider its accuracy likely, as they believed it would imply a U-turn from the Medium-Term Program (OVP) for Turkey’s exit from the economic crisis.

In fact, the detailed statement Şimşek made in English on March 11th from his X account also addressed these rumors.

Şimşek’s codes

The standout sentence in Şimşek’s message was that “the fluctuations in the foreign exchange market are temporary.” In the message published shortly by the Anadolu Agency in Turkish, there were other important elements.

Firstly, “the program will continue” even after the election, and structural reforms will be implemented. Indeed, we see in Şimşek’s statement that Central Bank Governor Fatih Karahan’s request for “fiscal policy support in combating inflation” received a positive response.

It wasn’t explicitly stated why these reforms weren’t being made now due to election economy, but mentioning that Turkey will have “a long period without elections to implement the Medium-Term Program” implied this.

This means that at least within the three years the OVP is expected to be valid, there are no elections foreseen. Şimşek mentioning a “period without elections” refers to the period until 2028 elections. The statement doesn’t align with the early election formula with a parliamentary decision for Erdoğan to run for President once again, as suggested by the Deputy Speaker of the Parliament Bekir Bozdağ.

On the other hand, if the “election-free period” refers to the election economy, does it also include a referendum for constitutional amendment? This is currently an open-ended question.