Currency Chaos Takes Local Turkish Vote Global
It’s not every day that municipal elections whipsaw investors on the other side of the globe. But the run-up to Sunday’s local balloting in Turkey has rattled markets from Japan to South Africa.
Turkey’s biggest cities are up for grabs in a vote that will serve as President Recep Tayyip Erdogan’s first test at the ballot box since he assumed vastly expanded executive powers last year.
But as pressure built on the lira, the central bank burned through a third of its net reserves. To avert a rout, Turkey engineered a liquidity squeeze that made it virtually impossible this week for foreign investors to short the lira, trapping them in trades they wanted to exit.
Although the longtime Turkish leader has a track record of swinging voters his way as polling day nears, this time they're casting ballots with the economy shrinking, jobs disappearing, and food prices surging. A top official promised the dawn of a “reform period” after the election, but the market’s patience is thin, leaving little room for policy error in weeks ahead.
Erdogan has shown little sign of backing down, even with the threat of U.S. sanctions if Turkey goes ahead with a planned purchase of a Russian defense system. In the final days on the campaign trail, he took one more swipe at foreign powers, describing the market chaos as a “U.S.-led operation by the West to corner Turkey.”
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