(ZEROHEDGE) – Yesterday, we discussed how Erdogan's shocking "plan" to rescue the Turkieh lira – once it crossed the red line of 18 vs the USD – came into being, and how it will eventually make an already dismal situation even worse, because it really represents a massive stealth "rate hike", one which will put huge stress on Turkey's balance sheet and will make the government budget more vulnerable to future currency shocks.
“There has been an epic interest rate hike without calling it one,” according to Refet Gurkaynak, a professor of economics at Bilkent University in Ankara. “There will be a big burden on the budget when there is a sharp increase in the foreign-exchange rate. This kind of burden usually gets monetized, which means even higher foreign-exchange and inflation rates.”
For those who missed our explainers of Erdogan's cunning plan to stabilize the Turkish lira until the elections, here it is again in a nutshell: the Treasury will underwrite losses in new lira deposits in the case of another run on the currency. That puts a strain on one of the few remaining bright spots in Turkey’s economy – its fiscal position – and highlights a growing trend among policy makers to lean on the public budget to pay for the cost of misguided policies.
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