Economy, Business And Markets

Weaker Lira and Iran-Turkey Trade

Weaker Lira and Iran-Turkey Trade Weaker Lira and Iran-Turkey Trade

As the Turkish lira continues to lose value against the US dollar, experts are weighing the potential consequences of such a fall for the Iranian economy given the large bilateral trade between the two neighbors.

The US dollar gained more than 3.3 percent against the lira since the start of the year, and was trading at around 1.59 liras on Monday. The greenback has gained more than 35 percent against the lira since the start of 2008.The expectations of a hefty interest rate cut by Turkey’s central bank is prompting the lira to drop even further.

Depreciation of the lira, which is in part due to political upheavals ahead of the parliamentary elections in that country, has taken a heavy toll on the country’s exports. Reports show that Turkey’s exports during the last month dropped by 13.4% compared to its previous year.

 Business With Iran  

As with any other currency drop, the biggest winners here are Turkish exporters who will reap the benefits of a stronger dollar. While most of the Iranian exports to Turkey are carried out by state-owned organizations, private traders can take advantage from the weak lira for cheaper exports. However, this is not necessarily good news in the long run since boosting the economy takes more than just a temporary gain from other currencies’ weakness.

“It’s true that a weak lira makes imported goods from Turkey cheaper, but the government should address the problem in the long term since an artificial surge in the rial like this goes against global norms”, Majid Reza Hariri, a business expert says in an interview to the Persian newspaper Shargh. “Despite all the hue and cry, private trade between Iran and Turkey is not as much as imagined and most of it is gas condensate which means the weak lira does not have a huge effect on our economy”.

Hariri goes on to argue that since a significant portion of Turkish goods -mainly clothing and home appliances- are in fact smuggled into the country, the government needs to launch a single exchange- rate regime and stop giving foreign currency at subsidized rates to importers. “The gap between the official exchange rate and the market rate is now about 17% and the government continuing to subsidize imports renders the effects of this dual rate policy ineffective in the market”, he added.

Furthermore, Hariri maintains that since hard currency is in short supply and only a selected few receive subsidized forex which, he says, triggers discrimination. “The demand for official-rate foreign currency is about $50 billion but the government, at its best, can deliver only $10 billion”.

 Private Trade    

Reza Kami, chairman of a joint Iranian-Turkish trade council says that the loss of value in the lira is an opportunity for Iranian traders to boost profits, according to Shargh.

“Most of our dealings with the Turks are done either with the US dollar or with euro but a weak lira means that we’ll have to pay fewer dollars which is a boon for Iranian importers”, Kami says. But the main issue here, he says, is to strengthen private trade between Iran and Turkey.

“Now it is the best chance for Iranian merchants to promote their business in Turkey and turn the weak lira into an opportunity for themselves”, he says. Kami adds that with a slight change in customs tariffs, the rampant flow of smuggling can be checked.  “After all, nobody is willing to go through the hassle of smuggling goods when the legal imports cost them only a tad higher”.