Turkish Companies ‘Paying the Bill’ as Political Crisis Roils Economy

 Cats watch as fishermen gather their catch at Besiktas neighborhood in Istanbul on March 28, 2024. (AFP)
Cats watch as fishermen gather their catch at Besiktas neighborhood in Istanbul on March 28, 2024. (AFP)
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Turkish Companies ‘Paying the Bill’ as Political Crisis Roils Economy

 Cats watch as fishermen gather their catch at Besiktas neighborhood in Istanbul on March 28, 2024. (AFP)
Cats watch as fishermen gather their catch at Besiktas neighborhood in Istanbul on March 28, 2024. (AFP)

Turmoil unleashed by the arrest of Türkiye’s leading opposition figure last week has sent shockwaves through the private sector, forcing companies to rethink strategy and dig in for a period of uncertainty and potential economic instability.

The detention of Istanbul Mayor Ekrem Imamoglu, who leads long-serving President Recep Tayyip Erdogan in some polls, has provoked the largest anti-government protests in a decade, leading to mass arrests and international condemnation.

The move also sent the lira currency to a record low, fueling a sell-off of Turkish assets that has destabilized company balance sheets and driven up already high borrowing costs.

Company officials told Reuters that Turkish businesses across sectors were scrambling to reassess risk, with some already pausing planned investments and slashing budgets.

"The industrialists now have to pay the bill for a crisis they did not cause," said Seref Fayat, chairman of System Denim, which manufactures garments for leading Western brands and exports them to Europe and the United States.

Fayat, who also heads a garment industry lobby group, said his credit costs have spiked due to the market turmoil.

He had been drawing up budgets for a second-half expansion of his business in anticipation of an expected rebound in customer demand from Europe.

"We immediately shelved these plans following the latest developments," he said.

The lira has recovered somewhat after touching a record low of 42 to the dollar, but only after the central bank stepped in to prop up the currency.

And businesses worry more pain is on the way.

Expectations of declining inflation and lower interest rates following the adoption of an orthodox economic program that had promised Turks future relief after years of soaring prices and currency crashes, now seem in doubt.

In an unscheduled meeting last week, the central bank raised its overnight lending rate by two percentage points to 46%.

According to information provided to Reuters by bankers, short-term commercial loan interest rates have increased from an average of 42-43% to 52-53%, with some rates as high as 60%.

Morgan Stanley now forecasts any cuts to the central bank's policy rate will be shelved until June. And Goldman Sachs said it expected a hike in the policy rate by 350 basis points.

'EVERY COMPANY NEEDS A PLAN'

"The latest developments will affect companies' investment expenditures the most," Hakan Kara, a former central bank chief economist now on faculty at Bilkent University in Ankara, said on X, pointing out that investment had already been slowing.

"This will probably become even more apparent in the short-term."

The government has said the recent economic turmoil would be limited and temporary. But some company officials worry the crisis may only be beginning.

Elections are set for 2028 when Erdogan, who has dominated Turkish politics for more than two decades, will reach his term limit.

Many, however, see the arrest of Imamoglu, who was jailed on Sunday pending trial for graft, as an early indication he could seek to remain in power, either through an early election or constitutional changes that would likely face public opposition.

Mehmet Buyukeksi, a board member at Ziylan, which operates in retail and real estate, said expectations of a more positive business outlook in Türkiye based on government efforts to right the economy as well as strengthening demand were now less certain.

Improvements, including lower borrowing costs, that he had been expecting to see in July, he is now pushing back to September, he said.

And there are other knock-on effects.

One company official said some firms were carrying out human resources risk assessments, worried that they could face blowback if their employees participate in protests or share political content on social media.

Some conglomerates are reevaluating their risks in terms of exchange rates, inflation, funding costs and are significantly increasing the likelihood of negative impacts in their assessments, the company official said.

And a mergers and acquisitions consultant said that, while some foreign firms might look past criticisms that the Turkish government's actions are growing increasingly undemocratic, few will pour investment into an economically fraught environment.

"Everyone will re-do their calculations and books," said Fikret Kaya, the general manager of plastics and industrial equipment manufacturer Kayalar.

"We have had to make monthly evaluations that we used to make quarterly. I think every company needs to make a plan."



Oil Extends Climb on Supply Fears, Trade War Concerns Cap Gains

FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
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Oil Extends Climb on Supply Fears, Trade War Concerns Cap Gains

FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)

Oil prices inched higher on Tuesday after threats by US President Donald Trump to impose secondary tariffs on Russian crude and attack Iran, though worries about the impact of a trade war on global growth capped gains.

Brent futures rose 21 cents, or 0.3%, to $74.98 a barrel at 0645 GMT, while US West Texas Intermediate crude futures climbed 22 cents, or 0.3%, to $71.70.

The contracts settled at five-week highs a day earlier.

"Near-term risks are skewed to the upside, with US threats of secondary tariffs on Russian and Iranian oil leading market participants to price for the risks of tighter oil supplies," said Yeap Jun Rong, market strategist at IG, Reuters reported.

However, broader themes still revolve around concerns of upcoming tariffs weighing on global demand, along with prospects of increased supply from OPEC+ and the US, said Yeap.

A Reuters poll of 49 economists and analysts in March projected that oil prices would remain under pressure this year from US tariffs and economic slowdowns in India and China, while OPEC+ increases supply.

Slower global growth would dent fuel demand, which might offset any reduction in supply due to Trump's threats.

After news of Trump's threats initially boosted prices on Monday, traders told Reuters they viewed the president's warnings to Russia, at least, as a bluff.

Trump, on Sunday, told NBC News that he was very angry with Russian President Vladimir Putin and would impose secondary tariffs of 25% to 50% on Russian oil buyers if Moscow tries to block efforts to end the war in Ukraine.

Tariffs on buyers of oil from Russia, the world's second largest oil exporter, would disrupt global supply and hurt Moscow's biggest customers, China and India.

Trump also threatened Iran with similar tariffs and bombings if Tehran did not reach an agreement with the White House over its nuclear program.

"For now, it appears to be just a threat to Russia and Iran. However, if it becomes a reality, it creates plenty of upside risk to the market given the significant oil export volumes from both countries," said ING commodities strategists on Tuesday.

The market will be watching for weekly inventory data from US industry group the American Petroleum Institute later on Tuesday, ahead of official statistics from the Energy Information Administration on Wednesday.

Five analysts surveyed by Reuters estimated on average that US crude inventories fell by about 2.1 million barrels in the week to March 28.