Turkish pharmacists association chairman Erdoğan Çolak has stated that data show 503 types of drugs are being distributed only on a limited basis to the Turkish market due to an ongoing currency crisis, making it difficult for patients to obtain their medications, the Birgün daily reported on Friday.
Limited distribution causes a gap in supply and demand, but sector representatives claim that the real crisis is expected to begin in two weeks’ time, when warehouses run out of certain types of drugs and are unable restock due to the Turkish lira’s dramatic decrease against the euro. As of Friday, 1 euro equaled TL 7,44.
Drug companies have not made any open demand to the government for an increase in the drug currency rate.
There are allegations that the government is pressuring drug companies and has avoided an explicit demand by promising them the fixed drug currency rate will soon be increased.
The Turkish government set the lira’s value for drugs at 2,69 against the euro in February, which prevents drug companies from selling medications at a higher rate to pharmacies regardless of changes in the rate of exchange. The regulation was intended to avoid constant fluctuation in drug prices and make them available to the public.
The regulation also fixes the profit of drug suppliers and pharmacies. However, the regulation has not been updated since February. As the lira continues to lose value against the euro, the gap between the amount drug companies pay to European suppliers and the amount they receive from Turkish pharmacies is widening.
Turkish lira crashes to record low on worries over economy, US row
Turkish Lira (TL) plunged to 6,80 against the US dollar on Friday as worries about President Recep Tayyip Erdoğan’s influence over monetary policy and worsening US relations snowballed into a market panic that also hit shares of European banks, Reuters reported.
The sell-off has deepened concern about exposure to Turkey, particularly whether over-leveraged companies will be able to pay back loans in euros and dollars after years of overseas borrowing to fund a construction boom under Erdoğan.
Erdoğan’s characteristic defiance in the face of the sell-off has further unnerved investors. The president, who says a shadowy “interest rate lobby” and Western credit ratings agencies are attempting to undermine Turkey’s economy, said in a speech overnight that Turks should “have no worries”.
“If they have their dollars, we have our people, our God,” he told a crowd in the Black Sea city of Rize.
He likened the successive loss in value of the lira to a coup attempt on July 15, 2016, saying, “We won’t lose the economic battle,” after Friday prayer in Bayburt province, according to the Cumhuriyet daily.
That is unlikely to mollify investors who are also worried by a growing dispute with the United States. The NATO allies are at odds over the detention in Turkey of American pastor Andrew Brunson on terrorism charges.
Those tensions with Washington have compounded concerns about Turkey’s authoritarian trajectory under Erdoğan.
“The basic reason the exchange rate has gone off the rails is that confidence in the management of the economy has disappeared both domestically and abroad,” said Seyfettin Gürsel, a prominent economist and a professor at Turkey’s Bahçeşehir University.
“First of all, confidence needs to be regained. It is obvious how it will be done: Since the final decision-maker of all policies in the new regime is the president, the responsibility of regaining confidence is on his shoulders.”
The lira was at 6,80 against the dollar at on Friday. Shares of European lenders also dropped, hit by concern about their Turkey exposure. The currency has fallen more than 35 percent this year after losing nearly a quarter of its value in 2017.
“The situation of Turkey cannot go on for much longer — I think they will have to intervene,” Cristian Maggio, head of emerging markets strategy at TD Securities, adding that the intervention needed to be “drastic.”
“Turkey is playing a very dangerous game. They keep lagging behind the curve, and the pace of the depreciation and the penalty that the market inflicts on Turkey when it sells off is increasing at a more than linear pace, almost exponentially.”
Erdoğan says Turkish economy will grow despite ‘attacks’ on currency
Erdoğan, a self-described “enemy of interest rates,” wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing. His comments on interest rates — and his recent appointment of his son-in-law as finance minister — have heightened perceptions that the central bank is not independent.
The central bank raised interest rates to support the lira in an emergency move in May, but it did not tighten at its last meeting.
President Erdoğan said on Friday that yet-to-be-released figures would show the Turkish economy grew in the second quarter “despite all attacks on our country over foreign currencies,” the T24 news website reported.
“They have now started to say currency… Let’s give up on that. Let’s focus on our business, it will be better,” Erdoğan said during a political rally in northern Gümüşhane province.
Global observers have criticized Erdoğan’s ambition to reach high growth numbers, which eventually boosts inflation and causes losses in value of the country’s currency. On Friday the lira hit 6.80 against the US dollar, a historic record.
Albayrak’s ‘new economy approach’ unhelpful to Turkish lira’s free fall
Finance and Treasury Minister Berat Albayrak — Erdoğan’s son-in-law, appointed last month — held a meeting on Friday at Dolmabahçe Palace in İstanbul to announce the policies Turkey would adopt for the new term, called the “New Economy Approach,” promising “decisive and strong steps,” the Habertürk daily reported, but it did little to help the TL free fall.
With Turkey’s prominent businesspeople, chairs of business associations and bank managers in attendance, Albayrak said the current situation in the economy did not match the macroeconomic trends. “We need to establish an effective means of communication [to explain our economic plan] and manage the economy in good faith,” Albayrak said, adding that the central bank’s independence is an essential component of the new term.
He also pledged to boost trust in the Turkish lira, which has recently plunged to historic lows and on Friday hit 6,80 against the US dollar.
Albayrak’s meeting was scheduled for earlier in the morning, but he postponed it twice during the day and at the opening of the presentation waited for a speech by his father-in-law, President Erdoğan, in Bayburt province after Friday prayer to conclude.
As global economists criticize Turkey deviation from orthodox financial policies, Albayrak’s presentation vowed to make structural reforms, maintain budget discipline, battle high inflation rates, lower the current account deficit and implement austerity policies in government spending.
“[Which should we choose?] Lowering inflation or economic growth? [The answer is] both fighting high inflation and maintaining healthy economic growth,” Albayrak said in response to critics, implying that Turkey had chosen to speed up economic growth over high inflation rates.
Prominent Turkish economy pundit Uğur Gürses commented on Albayrak’s speech, saying, “It’s a philosophical talk in the form of a presentation.”
“I’m all for a medium term strategy. But making a speech like Albayrak’s in the midst of a currency free fall without a single concrete measure shows utter lack of comprehension about what’s happening and what’s required,” Dani Rodrik, a Harvard professor, tweeted.
Relations with Turkey ‘not good’ Trump tweets when doubling tariffs
Meanwhile, US President Donald Trump on Friday told his administration to double the steel and aluminum tariffs against Turkey, reflecting the rapidly deteriorating state of relations between the two countries, The Washington Post reported.
“I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!” Trump tweeted on Friday morning.
The announcement would mark a major policy shift, but it was made in a Twitter post with little context. Trump remarked that Turkey’s currency, the lira, was weakening against the US dollar, a phenomenon that would make existing tariffs less impactful.
Doubling the tariffs to 20 percent for aluminum and 50 percent for steel would magnify the impact of the trade restrictions. Trump’s move reflects a confluence of factors that have led to worsening relations between the White House and President Erdoğan.
Turkey said on Friday it would retaliate to the raising of steel and aluminium tariffs by the US administration. In a tweet, Foreign Ministry Spokesman Hami Aksoy claimed that President Trump’s decision, which also violates the rules of World Trade Organization, “cannot be associated with seriousness expected from a state.”
“All the steps taken against Turkey will be given a befitting response as they have been given before,” he vowed. Aksoy said sanctions would only damage the relationship which has withstood the trials of time. “In order to bring solutions to the existing problems, Turkey will always side with diplomacy, dialogue, good will and mutual understanding,” he added.
The US Treasury Department slapped sanctions on two Turkish officials last week because the country had refused to release American pastor Brunson, who faces charges in Turkey of espionage and terrorism.
While Turkey and the US disagree over a host of issues, the most pressing disagreement has been over Brunson and the detention of other US citizens in Turkey. A delegation of Turkish officials held talks with their counterparts in Washington this week, but there is no sign of a breakthrough.
While there was no statement from the Turkish side, US State Department spokesperson Heather Nauert said wide-ranging conversations had been held. “I would say we would define progress as Pastor Brunson being brought home,” Nauert said.
The Turkish prosecutor accuses Brunson, who has run a small church in İzmir for over two decades, of activities on behalf of the outlawed Kurdistan Workers’ Party (PKK) as well as the Gülen movement, which is accused by the Turkish government of orchestrating a failed coup in 2016, an allegation strongly denied by the movement.
US officials have alleged the charges are bogus, and Trump tried to secure a deal for Brunson’s release, but the deal fell apart when a Turkish court, rather than sending Brunson home, ordered that he be transferred to house arrest while standing trial.
“This innocent man of faith should be released immediately,” Trump wrote in another Twitter post when it became clear Turkey would not release him.
The steel and aluminum tariffs stem from the trade fight Trump launched earlier this year with a number of countries, including Turkey. Trump has declared that the reliance of US importers on foreign metals poses a national security risk to the United States, and he has increased the cost of these imports on a range of countries, including Japan, Turkey and members of the European Union.