The one who wins elections from May 14 to Türkiye, will face intractable structural problems in the economy, which economists and investors warn will be “extremely difficult” to solve. It will be no less difficult to regain the confidence of foreign investors who have turned their backs on Turkey in recent years. As all market participants emphasize, the return of foreign capital to Turkey will require extensive reforms and changes, some of which will run into obstacles or cause significant problems.

Speaking in a related Financial Times report, Paul McNamara, head of investment at GAM in London, stressed that “Turkey has a grid of variables that are all in the wrong place and getting it back on track will not be easy. extremely difficult.”

According to Goldman Sachs, over the past decade, foreigners investors withdrew funds from Turkish equities totaling $7.3 billion Foreign capital flight from Turkey, a consequence of its unorthodox monetary policy Erdoganfrom chaotic inflation but also the geopolitical tensions in which the country is involved has led to the fact that Turkey’s public debt has ended up in portfolios banks. 80% of Turkish debt is in the portfolios of Turkish banks, including Turkish subsidiaries of international banks. This is the result of the obligations that the Erdogan government has systematically placed on Turkish banks through the central bank, putting the Turkish banking industry at risk.

It should be noted that according to the Turkish Ministry of Finance just ten years ago, in 2013, the corresponding percentage was less than 50%. Meanwhile, the unhealing wound of the Turkish economy is inflation, which theoretically fell to below 50% in April, but managed to seriously affect the living standards of Turks and the economy as a whole, as it recently jumped to above 100%, while at the end of last year it was at the level of 85%. As for the country’s currency, the Turkish lira, it lost 76% of its value against the dollar during Erdogan’s second term.

Over the past decade, they have withdrawn funds totaling $7.3 billion from Turkish equities.

Financial analysts and investors believe that in order to really stop inflation and support the currency, interest rates her Turkish lira they should reach 40% from 8.5%, to which the central bank reduced them at the direction of Erdogan. According to Financial Times analysts, this will lead to massive sales of Turkish bonds, which will hurt investments in the short term, as well as create big problems for Turkish banks.

Meanwhile, Erdogan’s government has adopted various unorthodox methods of propping up the currency without raising borrowing costs. One of them was the creation of special bank accounts that have been in existence since 2021 and have a government guarantee that any value they have lost due to the fall of the currency will be compensated if and for as long as they remain in Turkish Lira for predetermined period. time.

According to Turkish bank supervisors, the system has managed to maintain Turkish lira accounts totaling $102 billion. According to economists and analysts, this system poses huge risks to the state budget in the event of a sharp devaluation of the Turkish lira. pounds sterling, as the government would have to pay dizzying sums. However, the unblocking of all these accounts is fraught with equally great risks, as their holders can start buying dollars and euros en masse, driving the Turkish lira into a tailspin.

There have already been directions in this direction with some expired accounts. After all, all economists and analysts agree that after Sunday’s elections, no matter who wins, the lira will return to a downward trend. The volatility index of the Turkish currency next week, the first week after the elections, reached 64% and clearly exceeds the volatility of any other currency.

And as if all that wasn’t enough, the country’s gold and foreign exchange reserves were literally depleted as the Bank of Turkey spent billions of dollars intervening in the foreign exchange market to support the currency. Thus, Turkey’s foreign exchange reserves are in negative territory at -$10 billion, although they include at least $30 billion that the central bank has borrowed from local banks through short-term swap arrangements known as swaps.