President Recep Tayyip Erdoğan’s government has ordered private pension funds to boost their holdings of Turkish stocks after a sell-off caused by last week’s earthquake prompted authorities to suspend trading on the Istanbul stock exchange.
The decision, announced on Tuesday, was a day before the Istanbul stock exchange reopened. It closed six days ago as traders rushed to sell stocks after the devastating earthquake on February 6.
The measure, aimed at strengthening financial markets, comes as Erdoğan faces criticism over his handling of the earthquake response, which has killed more than 31,000 people in Turkey and thousands more in Syria, as well as the building standards imposed on the leader. – until disaster strikes.
Turkey’s Bist 100 business index has tumbled 18 percent this year, in a slide that has started even before the last earthquake as investors fretted about the tightly contested elections scheduled for May.
Turkey’s stock market was suspended on February 8 after two days of turbulent trading, with authorities also canceling all trading on Wednesday. The Turkish lira also remains under pressure, trading on Tuesday near a low of 18.85 to the US dollar.
Borsa Istanbul, the exchange’s operator, did not respond to a request for comment on Tuesday on whether it would reopen this week.
Private pension funds will be required to allocate 30 percent of the government funds contributed to match individual pension contributions for Turkish shares, said the announcement in the Official Gazette, Tuesday. The previous requirement was 10 percent.
The government matches 30 percent of pension contributions up to the minimum wage each year, according to HSBC.
Funds will also be allowed to increase the weighting of a single stock in their portfolio to 5 percent, up from 1 percent previously.
Erdoğan has promised to give earthquake-affected families TL10,000 ($530), but economists expect more measures in the coming weeks to soften the financial blow from last Monday’s quake.
Clemens Grafe, economist at Goldman Sachs, said much of the response will come from government spending, but the central bank also looks to provide a boost by cutting borrowing costs. Turkey’s central bank cut interest rates last year even as inflation rose above 85 percent in October, and analysts worry that easier measures to ease monetary policy could boost price growth after a cooling start in recent months.
“There is a high risk that the rates will be cut and after the introduction of various support measures by the banking supervisor . . . for those affected by the disaster,” said Grafe, referring to the greater grace period for loans and higher spending on credit cards and loosening other consumer banking rules.
Turkey’s debt burden is considered manageable for an emerging market economy with a speculative credit rating, according to economists and analysts. The country’s debt-to-GDP ratio will end in 2022 at about 37 percent, according to a poll of FactSet economists — giving the country some headroom to borrow for earthquake response and relief efforts.
Still, the yawning current account deficit and high inflation leave the country financially vulnerable, meaning that “it will not be easy to find market financing in sufficient yields in the potentially required scale”, Grafe said.
Grafe added that bilateral funding is essential to pay for relief and reconstruction efforts. The World Bank has announced $1.8bn in aid last week, although before the earthquake, funding from the Middle East and Russia became more important to the Turkish economy. Turks living abroad, many of whom are from the affected south of the country, may have contributed, Grafe said.