TRNC Continues to Face Currency Crisis

Dr. Berkan Tokar
[Dr. Berkan Tokar – Economist]
Monday, 12  June 2023

  Increases in exchange rates cannot be predicted but can be managed, economist Dr. Berkan Tokar* stated, Yeniduzen reports.

In an interview with Dr. Tokar, who was a former undersecretary at the Prime Ministry, he said that depreciation will continue.

 Pointing out that the country should switch to a foreign currency indexed accounting system* Tokar said, “If we had such an accounting system, there would be neither inflation nor such a difference in exchange rates“.

Tokar pointed to the fact that Turkey had increased its budget contribution to the TRNC, indicating that the coalition government had not managed the state’s finances well. Turkey contributes up to 26 percent of the TRNC budget.

He went on to say that cost of living payments could be reviewed every three months instead of every six months, in order to protect purchasing power. The cost of fuel and energy also was a factor.

Noting that the fiscal budget expands and resources increase at times of inflation. “When inflation rises, the money in the Ministry of Finance also increases”, Tokar said.

The TRNC has serious advantages such as foreign demand. People from the south spend money here. They do not spend the income they earn here, but our state collects the tax. There are university students, close to 100,000. They spend the money they bring from abroad. This increases indirect taxes. When inflation rises, so does the money in the Ministry of Finance. This resource should be directed to people with reduced purchasing power”.

Economic Protocol With Turkey

Referring to the economic protocol that was published two months later despite signing it with Turkey, Tokar said that the protocol was not ‘reformist’ and emphasised ‘the economy standing on its own feet’.

The expectation was that a good captain would come to the head of the economy after the election in Turkey… The arrival of Mehmet Şimşek also shows this. But more important than who comes, what to do is important. Şimşek was expected to come with a programme. But there is no programme. Şimşek said that he would follow a rational policy. With this statement, he said that the policies implemented in Turkey so far are not very rational. We expect a different interest rate regime and different economic policy to be implemented in Turkey based on these statements. But we have not seen this on a programme. There is a presidential system in Turkey. In this context, what is the president’s view? We did not see any reaction to that either”.

*Dr. Berkan Tokar is a Senior Lecturer in the Department of Economics at EMU.

Yeniduzen

*A managed currency is one where a nation’s government or central bank intervenes and influences its value or buying power on the market, especially in foreign exchange markets. Central banks manage currency by issuing new currency, setting interest rates, and managing foreign currency reserves. [Investopedia]

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