Turkish lira’s losses force businesses to reject local currency contracts

Steep declines for the Turkish lira against major currencies are destablising domestic production and trade and prompting suppliers to demand cash upfront for orders or to insist on contracts in foreign currency, Dünya newspaper reported on Tuesday.

High currency volatility meant that wholesalers and raw materials producers were unable to set prices, meaning contracts had become very difficult to make, said Şeref Fayat, president of the Union of Chambers and Commodity Exchanges of Turkey (TOBB) Ready-to-Wear and Apparel Sector Assembly.

Sellers are becoming concerned that they will not be able to replace goods purchased by customers and that they will have to buy goods at a higher price than they can sell them, Fayat said, according to Dünya. Contracts for the payment of orders for the domestic market are normally made over as many as six months, but now two months or even two days has become intolerable, he said.

Turkey’s lira dived to a fresh record low of 11.99 against the dollar on Tuesday morning, slumping more than 5 percent on the day. Losses for the currency this year total more than 35 percent.

Manufacturers cannot reflect their own costs on selling prices and cannot replace the goods at the price they bought them, therefore businesses have to protect their capital from volatility, said Adnan Dalgakıran, head of the Turkish Machinery Federation (MAKFED).

“Most businesses already have capital shortages, so they have to make one of two bad choices. You cannot label it hoarding when people hold goods to protect their capital. This is not hoarding, it is an effort by the business world to protect capital.”

In the machinery industry, deliveries usually occur 3-4 months after an order is placed, therefore sector participants have difficulty providing prices and focus on exports, Dalgakıran said.    

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