Turkey moves to calm investors after quashing coup attempt

BLOOMBERG

The Turkish government moved swiftly to calm investors before financial markets reopen on Monday after a failed coup, with the central bank promising unlimited liquidity to lenders and the deputy prime minister posting on Twitter that there’s “no need to worry.”
Turkey’s lira plunged the most against the dollar in eight years on Friday as tanks rolled through the streets of Ankara and Istanbul, and warplanes and helicopters circled overhead. While President Recep Tayyip Erdogan’s forces rounded up thousands of judges and military officers involved in the coup attempt, officials sought to prevent a sell-off when stocks and bond traders have their first chance to react to the news on Monday.
“We’re on duty,” Simsek said on Twitter, adding that he’d spoken to central bank Governor Murat Cetinkaya and will hold a teleconference with international investors on Sunday. “Turkey is normalizing rapidly after the coup attempt was repelled by the nation. Our country’s macroeconomic foundations are solid.”
In addition to guaranteeing liquidity, the central bank said it would support the lira by removing the limits on foreign currency deposits that commercial lenders are allowed to use as collateral. Oil and gas imports and exports are unaffected by the coup, with tankers freely navigating Turkish waters and shipments arriving by pipeline from neighboring countries, an official at the energy ministry said, asking not to be identified in line with official rules.

Economic Threat
Though quashed within hours, the failed takeover threatens to destabilize an economy that depends heavily on capital inflows to finance its current-account deficit. Erdogan’s increasingly authoritarian streak was already worrying investors as he pushed his top economic advisers one-by-one from office, stoking fears of policy mistakes and leading to a drop in foreign investment.
Sekerbank TAS, an Istanbul-based lender owned by its employee pension fund and Kazakhstan’s sovereign wealth fund, postponed investor meetings scheduled for Sunday for a proposed bond sale of as much as $300 million after the coup attempt. It will now contact investors at the appropriate time to reschedule the meetings, bankers with knowledge of the deal said in an e-mail.
“Clearly the attempted coup in Turkey will make investors and other market participants more wary of participating in Turkish fixed income paper, at least until we get some clarity and the political situation stabilizes,” said Chavan Bhogaita, head of markets strategy at National Bank of Abu Dhabi.

Falling Investment
Of the $15.8 billion foreigners poured into Turkey in the first five months this year, net direct investments accounted for only $2.3 billion — down 50 percent from the same period a year ago — with the remainder coming from inflows of hot money into stocks and bonds, as well as other investments including loans to banks and companies.
That “will now surely reverse, causing inevitable market distress,” Michael Howell, managing director of CrossBorder Capital, said in an e-mail.
Turkey had geopolitical risks for investors to consider before Friday, including Erdogan’s intensifying military campaign against autonomy-seeking Kurds in the country’s southeast. The president has also committed the army to an active and perilous role in Syria’s war, with an estimated 3 million refugees crossing over the border into Turkey.

Presidential Powers
Meanwhile, Erdogan has been adding more executive powers to what was a traditionally presidential office, undermining investor confidence in his government’s ability to deliver growth. He and his allies were strong critics of the central bank under Cetinkaya’s predecessor Erdem Basci, and the president has removed from office all but Simsek from the group of officials who oversaw the nation’s rapid growth era at the start of the century.
Growth has averaged 2.6 percent a year since the 2009 recession, compared with 6 percent over the previous six years, with Erdogan’s AK Party in power throughout. Gross domestic product has remained around $10,000 per capita since 2008.
Erdogan embarked on a swift crackdown on opponents in the aftermath of the coup attempt, which left 165 people dead. Justice Minister Bekir Bozdag said on Sunday that more than 6,000 people have been detained.
U.S. operations resumed out of Incirlik Air Base, which is central to the campaign against IS, Defense Department spokesman Peter Cook said in a Twitter post. Eleven soldiers, including base commander General Bekir Ercan Van, and a police officer at the base were arrested for their complicity in the coup attempt, according to a text message from the president’s office.
Erdogan said on Sunday he asked the U.S. to extradite an Islamic cleric, Fethullah Gulen, who is accused by Turkish authorities of being the ringleader behind the coup attempt. Turkey has long sought action against Gulen, who’s been living in the U.S. for more than 15 years. Gulen denied any connection with the coup.