Turkey faces 2001 crisis repeat, foreign buyouts, ex-central bank chief says

Turkey is heading for a repeat of a 2001 financial crisis, when foreign companies bought up Turkish firms on the cheap, according to Durmuş Yılmaz, a former governor of the central bank.

Yılmaz slammed Finance Minister Berat Albayrak for comments on Tuesday predicting a new wave of foreign capital entering the country, saying the lira’s record slump against foreign currencies amounted to a self-fulfilling prophecy, threatening to turn Turkey into a paradise for bargain-hunters.

The embattled lira slid 0.7 percent to a record 8.2385 per dollar on Wednesday, extending the longest losing streak since 1999. Losses this year total 28 percent – the lira had traded at 5.94 per dollar on Jan. 1.

“With the exchange rate at these levels, everything is so cheap it’s become a steal,” Yılmaz said on Twitter. “But there’s more to come - let prices fall a bit more and just like in the 2001 crisis, Turkish companies will fall into foreign hands.”

The ex-central banker, now a prominent member of an opposition political party, is credited for bringing Turkey’s run-away inflation under control a decade ago with tight monetary policy. He has been a staunch critic of the bank’s current policy framework, which has kept interest rates at below annual inflation.

Turkey was forced into signing an extension of a 1999 International Monetary Fund loan deal in May 2001 worth $19 billion after a series of economic missteps led to a slump in the lira’s value, a surge in interest rates and inflation, and a balance sheet crisis at state-run banks.

The latest slump in the lira’s value comes after the central bank surprised investors by keeping its benchmark interest rate unchanged at 10.25 percent last week. Economists had expected a hike of around 2 percentage points. Inflation in the country stands at 11.8 percent.

Foreign capital has flowed out of Turkey this year on concerns for economic and monetary policy, which has put economic stimulus ahead of the fight against inflation and protecting the value of savings and investment.

Albayrak spoke with more than 70 representatives of global companies in an online meeting on Tuesday to lay out the government’s economic plans and to reassure them about investing in the country. Albayrak said the government was seeking a "competitive currency".

The central bank has spent tens of billions of dollars of its foreign exchange reserves this year to prop up the lira. State-run banks sold several hundred million dollars this week. Turkish President Recep Tayyip Erdoğan sacked and replaced the governor of the central bank in July last year for failing to cut interest rates.