“Make no mistake, this is a very big deal for Turkey,” said Win Thein, global head of currency strategy at Brown Brothers Harriman & Co. “Maybe this is another small step towards Turkey becoming investable again.”
Geopolitical risks have helped reduce demand for Turkish assets as relations between Erdogan and key Western allies have been strained by Istanbul’s blockade of Sweden’s NATO membership and its purchase of a Russian missile system. However, since the election, Erdogan has gradually improved relations and scaled back unconventional economic policies in hopes of attracting foreign capital to revitalize the Turkish economy.
“After years of deteriorating relations with the West, Turkey finally seems to realize that close relations with Russia have not been good,” said the BPH’s Thein.
In another encouraging sign for investors, Erdogan is set to meet US President Joe Biden at a NATO summit in Lithuania on Tuesday, where they are set to discuss Turkey’s order to buy the F-16s.
The Turkish lira traded 0.1% weaker at 26.11 against the dollar, continuing its slide since Turkish authorities allowed more currency flexibility in the wake of the vote, as part of their approach to gradually abandon unconventional economic policies. The yield on Turkey’s 10-year dollar bond fell 28 basis points to 8.74%, while the Istanbul Stock Exchange benchmark rose 4.9%.
With the country’s foreign exchange reserves depleted and more than $200 billion in debt payments due, Erdogan is looking to bridge the investment gap. The President will visit the United Arab Emirates, Saudi Arabia and Qatar from July 17-19.
Meanwhile, Turkish Minister of Treasury and Finance Mehmet Simsek said the rise in central bank reserves in June was “encouraging”.
“The NATO deal, increased reserves, even a gradual shift to traditional policies and expectations of more money from the Gulf are all helping to feel positive and driving down risk measures,” said Victor Szabo, chief investment officer at Abrdn in London.