By Jonathan Spicer and Ece Toksabay
ISTANBUL (Reuters) – Countless Turkish day workers risk falling through a financial safety net being set up to support those idled due to the coronavirus outbreak, as authorities in Ankara scramble for funds to stretch it more widely.
COVID-19 cases in Turkey have soared to beyond 60,000 with almost 1,300 deaths, triggering curbs that have forced businesses to furlough or lay off millions of contracted staff. The government has promised to top up their income or pay them small daily stipends.
However, cash-in-hand day workers like house cleaners, barbers, small retailers and bus drivers – who the main opposition party says number up to two million – are mostly uncovered by those measures.
Officials say more support is in the works, but the state is also running out of ready cash.
It has a hefty $170 billion of foreign debt falling due this year and the funding backstop of net central bank hard currency reserves has fallen to an 11-month low of $27 billion.
The cost of insuring Turkey’s debt against default
“The risk of an acute balance-of-payments crisis has been magnified by the coronavirus outbreak, as illustrated by an acceleration in capital outflows and dwindling foreign exchange reserves,” said Moody’s of Turkey’s public accounts.
If funding is not found and the outbreak lingers deep into the year Turkey could – in the rating agency’s worst-case scenario – fail to service some debts and fall into a repeat of its 2018 currency crisis.
Moody’s, and many financial analysts, are also reckoning with possible capital controls as a last-ditch option to tap some of the nearly $200 billion in foreign currency deposits held by locals.
TURNING TO FRIENDS
Erdogan’s government, which has drafted a bill to temporarily ban layoffs, says 2 million Turks have applied for topped-up pay, and some 4.4 million low-income families will receive cash.
That figure will cover those day workers employed by businesses under the support programme, but most – who are being advised rather than forced to stay at home under current restrictions – do not fall into that category.
Kamile, 39, a self-employed home clearer in Ankara who has not worked in more than three weeks, said she “applied to everything I saw on television, but haven’t received anything yet.”
“I am afraid of contracting the virus from clients’ apartments, and they are afraid of contracting it from me,” she said. “I am constantly borrowing money from family and friends.”
The central bank bought a record 25 billion lira ($3.7 billion) of government bonds since March 30, mostly held by the Unemployment Insurance Fund being tapped for the government programmes.
That effective money-printing will continue, adding pressure on the lira as the bank also tries to stabilise it by spending billions of dollars in the markets.
In the search for a solution to the cash crunch, the financial regulator has severely restricted bank trading in foreign exchange swaps, while Ankara has appealed directly to Washington for a dollar swap line from the Federal Reserve.
Faik Oztrak, spokesman for the main opposition Republican People’s Party – which wants the government to cover all workers’ lost income – called the search for foreign swap deals a “declaration of bankruptcy”.
Erdogan said on Monday that Turkey’s economy was solid and the government had the power to meet “every need of every citizen” including those who had lost income.
But it is far from clear if the Fed will extend Turkey a swap line and, if foreign funding falls through, he may have to choose between swallowing his pride and joining the around 90 countries that have sought emergency IMF support, or implementing capital controls.
“Turning to the Fund would be a huge loss of face for … Erdogan and he would exhaust all other options first,” said Liam Peach of Capital Economics.
(Additional reporting by Nevzat Devranoglu and Orhan Coskun in Ankara; editing by John Stonestreet)
