Turkey's in trouble. Again.
21/5/20 10:50![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
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talkpolitics"An assault on Turkey!"; "Dark forces are attacking the Turkish Lira!" Those are the headlines you could see around the government-friendly newspapers in Turkey these days. The reason, the Turkish currency has hit rock-bottom. Now a US dollar is traded for more than 7 Lira, something unseen in decades. The Lira has lost nearly 1/5 of its value since January, and that's very worrying.
Thus, Turkey's been heading toward a second recession within a couple of years. The previous one was in August 2018, caused by the row with the US caused by the detention of a controversial US pastor by Turkey. But now the reasons are far more complex. The main one, a mountain of debt. This year Turkey will have to cover public and private debt worth 170 billion dollars. This time the experts don't see a way out. The overall opinion is that Erdogan's government won't be able to cope.
USD vs TL
Although Turkey's been doing relatively well regarding the Coronavirus (so far), it could become the first country in the world to suffer an economic crash as a consequence of the crisis. Turkey has heavily relied on exports to cover the bulk of its expenses (180 billion dollars for 2019), and also tourism (36 billion), with some good mix of foreign investment as well. But this year the Turkish exports have contracted by a staggering 40%, and things are not looking good at all.
The tourism income, understandably, has suffered drastically, and fresh cash isn't flowing in, now that Erdogan has pressed the interest rates below the inflation levels. Now the consequences of investing heavily in huge infrastructure projects can be seen fully. The humongous new airport in Istanbul, once it was completed, turned out extremely unprofitable. It's hardly working now, for many reasons (being in the middle of the major bird migration highways being one of them). A bag-full of gargantuan bridges were also built, leading to nowhere, and no one passing through them today. Now the government will have to pay the bill for their construction.
The Turkish Central Bank currency reserves have melted away from 40 billion dollars at the end of last year to 28 billion as of today, since the bank tried to stabilize the Lira through some monster purchases - and failed. For political reasons, Erdogan has refused to take loans from the IMF, and negotiations with the US central bank on the so called swap loan lines, which could've allowed Turkey access to the cash dollar markets, have obviously failed too. The conditions for such a deal are clear: a politically independent Central Bank, and low inflation rates. Two things you can't see in Turkey right now, can you?
In this situation, the only possible savior for Turkey appears to be - surprise, surprise - China! The last time Turkey got a save line along that channel the amount was 1 billion dollars, but now China doesn't seem likely to dump more money onto the sinking ship that is Turkey.
The Turkish Central Bank could of course try an interest rate hike, and a drastic one, so it could attract foreign capitals. Granted, that would stabilize the Lira somewhat, and the large companies indebted in US dollars would benefit. But in the meantime, that would crush the smaller businesses who've been struggling with the consequences of the pandemic already. The unions are concerned that unemployment would jump from 14% to 20%, and another 8 million Turks would remain jobless.
In a nutshell, Erdogan is pressed against the wall. In all likelihood, Turkey will be unable to serve its credits through 2020, and unless it gets urgent help from abroad, the state bankruptcy looks imminent. Of course, Erdogan has shown time and time again that whenever his grip on power is threatened, he's always taken to the offensive. He'll always find a culprit outside himself. Now the opposition is guilty, and some foreign dark forces threatening Turkey's integrity, therefore they need to be destroyed. But what's about to get destroyed as collateral is also the last remnants of democracy in that country, along with the modest prosperity that the Turks have managed to craft for themselves through blood, sweat and tears for the last few years.
Thus, Turkey's been heading toward a second recession within a couple of years. The previous one was in August 2018, caused by the row with the US caused by the detention of a controversial US pastor by Turkey. But now the reasons are far more complex. The main one, a mountain of debt. This year Turkey will have to cover public and private debt worth 170 billion dollars. This time the experts don't see a way out. The overall opinion is that Erdogan's government won't be able to cope.
USD vs TL
Although Turkey's been doing relatively well regarding the Coronavirus (so far), it could become the first country in the world to suffer an economic crash as a consequence of the crisis. Turkey has heavily relied on exports to cover the bulk of its expenses (180 billion dollars for 2019), and also tourism (36 billion), with some good mix of foreign investment as well. But this year the Turkish exports have contracted by a staggering 40%, and things are not looking good at all.
The tourism income, understandably, has suffered drastically, and fresh cash isn't flowing in, now that Erdogan has pressed the interest rates below the inflation levels. Now the consequences of investing heavily in huge infrastructure projects can be seen fully. The humongous new airport in Istanbul, once it was completed, turned out extremely unprofitable. It's hardly working now, for many reasons (being in the middle of the major bird migration highways being one of them). A bag-full of gargantuan bridges were also built, leading to nowhere, and no one passing through them today. Now the government will have to pay the bill for their construction.
The Turkish Central Bank currency reserves have melted away from 40 billion dollars at the end of last year to 28 billion as of today, since the bank tried to stabilize the Lira through some monster purchases - and failed. For political reasons, Erdogan has refused to take loans from the IMF, and negotiations with the US central bank on the so called swap loan lines, which could've allowed Turkey access to the cash dollar markets, have obviously failed too. The conditions for such a deal are clear: a politically independent Central Bank, and low inflation rates. Two things you can't see in Turkey right now, can you?
In this situation, the only possible savior for Turkey appears to be - surprise, surprise - China! The last time Turkey got a save line along that channel the amount was 1 billion dollars, but now China doesn't seem likely to dump more money onto the sinking ship that is Turkey.
The Turkish Central Bank could of course try an interest rate hike, and a drastic one, so it could attract foreign capitals. Granted, that would stabilize the Lira somewhat, and the large companies indebted in US dollars would benefit. But in the meantime, that would crush the smaller businesses who've been struggling with the consequences of the pandemic already. The unions are concerned that unemployment would jump from 14% to 20%, and another 8 million Turks would remain jobless.
In a nutshell, Erdogan is pressed against the wall. In all likelihood, Turkey will be unable to serve its credits through 2020, and unless it gets urgent help from abroad, the state bankruptcy looks imminent. Of course, Erdogan has shown time and time again that whenever his grip on power is threatened, he's always taken to the offensive. He'll always find a culprit outside himself. Now the opposition is guilty, and some foreign dark forces threatening Turkey's integrity, therefore they need to be destroyed. But what's about to get destroyed as collateral is also the last remnants of democracy in that country, along with the modest prosperity that the Turks have managed to craft for themselves through blood, sweat and tears for the last few years.
