Economist Atilla Yesilada:  FX controls will soon spread to Grand Bazaar

Indicating that it may be the turn of the citizens to be brought under  capital controls, Yesilada said, “An intervention may be expected in the Grand Bazaar soon, for instance foreign exchange kiosks might be forced to charge wider buy-sell spreads to tame FX demand”.


There may be an intervention in the Grand Bazaar  “curb market” soon

The steps of the Central Bank (CBRT) and the economy administration to reduce foreign exchange purchases caused foreign exchange transactions to shift from banks to the Grand Bazaar. The fact that the CBRT imposed a daily limit on the foreign exchange purchases made by the banks in the interbank market in order to alleviate the pressure on the TL also increased the activity in  Grand Bazaar, also  called Çarşı.

While the dollar was at 19.40 lira in the interbank market, it was 21 lira in the Grand Bazaar. Economist Atilla Yesilada, drawing attention to the risks of the dual exchange rate system, pointed out that the Central Bank’s  daily quota on foreign currency that banks can buy from Interbank indirectly means that “individuals and companies are prohibited from buying foreign currency”, and thus, capital controls are now on the agenda for individuals, as well as companies, which had been de facto subjected to capital controls over the last year.

Yesilada stated that the CBRT has returned to pegged  exchange regime with unwritten verbal rules and added, “It is done through the back door, not openly in case voters are alarmed.”



Yesilada said, “An intervention may be expected in the Grand Bazaar soon, which may take the shape of minimum commission rules imposed on foreign exchange kiosks. We can go back to the days of searching for dollars in the ’70s, through an acquaintance who knows somebody.

Yesilada said that even if CBRT somehow managed to hold the line  on the currency until the elections, serious risks accumulated adding, “The problem here is that none of these decisions are written. On May 15, banks may say, ‘I do not follow the oral rules. Issue a  legally binding macro-prudential regulation, and bring it to me, otherwise I will buy foreign currency as much as I want’. The  consequence could be a sudden rush to hard currency, with the exchange rate exploding. “If presidential elections go the second round, unenforceable rule could become a very serious danger,” he said.

‘Devaluation is possible’

Foreseeing that there may be a devaluation as a result of the regulatory chaos between 14-28 May, Yesilada said, “Even if there is a devaluation, if the Nation Alliance comes to power, it will not be permanent. Tourism season begins, bringing in  6-8 billion dollars  in June only. All this will happen if the AKP rule continues, but it will be permanent. Because no change is expected in economic policies,” he said.


Erdogan needs the IMF

Economist Atilla Yesilada added, “We will experience the 2001 crisis again in the winter, if the AKP government continues with the current economic policies, in the scenario where Erdogan will have  won the election”.  “If Erdogan stays, Turkey will need the IMF.” Yesilada continued his words as follows: “We do not need IMF funds at this juncture, we need long-term loans and grants to pay the earthquake costs. No one wants to talk about  the cost of the earthquake; its financing has become a topic that is taboo. There is a loss of wealth amounting to 100 billion dollars, how will this be met in a country that does not save?”


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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.