Turkey’s Erdogan meets Salvadoran Bitcoin leader amid economic crisis

ISTANBUL — Turkish President Recep Tayyip Erdogan is due to meet the leader of El Salvador, the first country to make bitcoin legal tender, on Thursday, while Turkey’s central bank kept interest rates on hold in a move that won’t probably not much to stop the country. monetary crisis.

As El Salvador plans to launch a billion-dollar bitcoin-backed bond, Turks and foreign investors are watching closely to see if Erdogan’s meeting with President Nayib Bukele in Ankara marks a change in how the Turkish government views cryptocurrencies, despite last month. fall in dollar value of bitcoin.

The Turkish government has taken a restrictive approach to cryptocurrencies in recent years, but analysts expect Bukele to advocate for the use of crypto at the meeting, which comes during a turbulent time in the world. Turkish economy. The Turkish lira lost about 40% of its value against the dollar last year, sparking occasional protests and threatening the financial stability of the country, which is a member of the Group of 20 and the United Nations Treaty Organization. North Atlantic.

Meanwhile, Turkey’s central bank kept its benchmark one-week repo rate at 14% on Thursday. Officials have cut rates for the previous four consecutive months, accelerating the currency’s collapse.

Mr Erdogan has demanded lower interest rates as part of his unorthodox strategy to spur economic growth and has sacked nearly all senior Turkish officials who oppose his vision. Last year’s rate cuts pushed up inflation through cheaper loans while eroding the pound’s purchasing power, pushing up the prices of key imports such as food and energy.

To offset inflation and a sharp depreciation of the lira, Turks have piled into cryptocurrencies. The meeting with Mr Bukele comes as Mr Erdogan said he was proposing new legislation that would regulate nascent assets. While Turkey banned cryptocurrencies as a means of payment last year, Mr Bukele’s government became the first in the world to adopt bitcoin as its national currency.

Mr. Bukele is one of the world’s leading supporters of cryptocurrencies and analysts expect him to raise the issue during the meeting with Mr. Erdogan, but it is unclear whether the Turkish government will change. position on the issue.

“As an administration, they are a strong supporter of bitcoin, so I’m pretty sure he’s going to raise the issue of bitcoin,” said Turan Sert, an adviser at Turkish cryptocurrency exchange Paribu. “They may listen to it but I’m not sure it will have much effect on the thinking of the Turkish administration.”

The two leaders exchanged welcoming tweets and emojis of each nation’s flag. Mr. Bukele wrote of his visit in Turkish, and Mr. Erdogan written in spanish that the nation attached great importance to the visit.

“Greetings to everyone in Turkey from El Salvador, the land of #Bitcoin,” Bukele said.

Mr. Erdogan, an elected leader who has eroded Turkish institutions and overseen the crackdown on his political opponents, enjoys warm personal relations with autocratic leaders around the world, including Russian President Vladimir Putin.

Mr Bukele, a populist who was elected in 2019 as a political outsider amid discontent over violence and poverty, has come under fire from the Biden administration for reinforcing authoritarian control of the country, replacing the judges of the Constitutional Court and the prosecutor. general.

El Salvador has seen bitcoin in part as an opportunity to break away from a dollarized economy, the country’s other legal tender for the past two decades.

In recent years, Turkey has made efforts to reduce its ties to foreign currencies, reducing foreign currency debt and encouraging locals to exchange gold and other currencies for liras.

These efforts have been disputed, however. A recent initiative to encourage residents to lock their lira deposits for at least three months has seen little demand. Turkey’s central bank recently extended the program to businesses to boost participation.

Even if the central bank keeps interest rates on hold, investors and analysts expect the pound to continue to come under pressure from high inflation and locals to continue transferring their money in foreign currencies, gold and other assets.

“It will ease some of the market concerns about more negative real interest rates, but it won’t solve any of the underlying problems with tackling soaring inflation,” said Phoenix Kalen, strategist at the Society. General. “There will always be a demand for foreign exchange as inflation rises.”

Turkey’s annual inflation rose to 36.1% in December from 21.3% in November, and economists expect official figures to rise to 50% in the coming months.

“We are going to have a really tough quarter of 2022. It will be very tough for the Turkish people,” said Mustafa Sonmez, a Turkish economist.

Write to Jared Malsin at jared.malsin@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com

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