Turkey Crisis – Time to turn the Keys!

By Jill Mehta, Freelance Consultant @ IndusGuru

Turkey’s currency Lira is plunging continuously which in turn is causing double digit inflation in the country. Lira’s free fall along with severe geopolitical tensions with Syria, Russia and USA is causing Turkey’s economy to dwindle rapidly. And Turkish President Recep Tayyip Erdogan’s locking horns with the equally strong-headed US president Donald Trump is not helping matters.

Let’s look at some possibly resolvable plots that have snowballed into a massive chunk of the Turkish crisis, making its currency fall over 45% and inflation rise to 20%.

Plot 1: The release of Pastor Brunson

The release of one man, Pastor Brunson, might save Turkey from becoming hostile to the world superpower USA. But how is that?

Pastor Brunson is an American who has been jailed in Turkey for alleged coup attempt in 2016. While the president Erdogan is adamant on keeping him behind bars, the White House has openly challenged Turkey stating clearly that the detention of Brunson will affect the relations between the two countries negatively.

Plot 2: Brunson vs Tariffs

How much money can it cost for not releasing Brunson?

The US president believes it should cost twice the initial amount! President Trump doubled tariffs on Steel and Aluminum imported from Turkey, while President Erdogan is still wondering how to make Lira stronger against the US Dollar.

 

Plot 3: Why is President Erdogan still wondering?

While Erdogan could easily combat inflation by raising interest rates, he is still wondering how to resurrect Lira – the primary reason being, Erdogan considers charging interest on debt evil. In fact, he publicly made a bold statement saying “Interest rates are the mother and father of all evil”.

So we at least know he is not in favor of the Central Bank increasing interest rates.

Plot 4: But aren’t government office and Central Bank independent of each other?

Maybe not in this case. Surprisingly Berat Albayrak is better qualified to head the central bank.

Berat Albayrak is the son-in-law of president Erdogan which explains why the interest rates in Turkey won’t change until Erdogan gives a nod. Let alone the independence of the Central Bank.

Plot 5: How much is too much?

Many corporates as well as the government of Turkey raised a lot of debt from foreign US markets when the interest rates were rock bottom low. Now that the Fed is hiking rates continuously, economies like Turkey are finding it difficult to repay the debt. Turkey’s foreign currency-denominated debt pile amounted to $US437.7 billion — equal to around 50% of nominal GDP. Turkey had a huge current account deficit of 6.5% as of August 2018.

Plot 6: Be a good neighbor or save yourself?

Turkey has opened its doors to around 3million Syrian refugees. That said turkey is a very friendly neighbor country. But it is expected that the count of Syrian refugees will increase to 5 million over the next few years. Now, Turkey is concerned about social tension due to over population and is, at the same time, facing infrastructure development problems.

Plot 7: NATO Allies – does it count?

Turkey seems to be on its way to establishing better relations with Russia which naturally upsets President Trump. Several comments made by economists say that if Turkey had been a true ally to the US then it wouldn’t have arrested Brunson in the first place. Moreover, Trump had indirectly indicated in one of his speeches that he may leave NATO if events continue in the same manner.

What can turkey do about this?

  1. Increase interest rates
  2. Request the International Monetary Fund for a bail out
  3. Extend an olive brand to the US (which would also mean releasing Pastor Brunson)

 

Technically, there are many other monetary and political steps Turkey could take to save itself in the longer run. But the question remains whether President Recep Erdogan will be willing to loosen the string from his hands and also whether Turkey’s relation with other nations will turn tables and stabilize in the near future?

#currencycrisis #turkey #tamam #erdogan #liracrisis

Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of IndusGuru Network Partners