Turkish currency and debt crisis 2018
The Turkish currency and debt crisis 2018 ( Turkish: Türkiye döviz ve borç krizi ; also Turkey crisis or Lira crisis ) was a financial and economic crisis in Turkey . It was characterized in particular by a devaluation of the Turkish Lira (TRY), high inflation rates and borrowing costs , and appropriate loan losses. The causes of the crisis are the high current account deficit of the Turkish economy and private foreign currency debts, the increasing authoritarianism of Recep Tayyip Erdoğan and his controversial interest rate policy . Some analysts also see links between the crisis and diplomatic tensions between the US and Turkey .
While the crisis was initially characterized by a gradual devaluation of the currency , later stages were marked by defaults and finally by a contraction in economic growth . The crisis resulted in stagflation . It ended a period of overheating growth, which was largely based on a period of increased construction activity in Turkey - driven by generous government spending and cheap loans . The lira recovered from the end of August; In November 2018, the euro fell below six lira for the first time. The parity was thus back to the level at the end of July 2018.
causes
Current account deficit and foreign currency debt
A long-standing feature of the Turkish economy is its low savings rate. Turkey has had high current account deficits since Recep Tayyip Erdoğan ruled. These amounted to $ 33.1 billion in 2016 and $ 47.3 billion in 2017. The Turkish economy has long relied on capital inflows to finance the shortfall in the private sector, with Turkish banks and major banks Companies had to take out large loans; often in foreign currencies. Turkey has to raise such large sums of money to finance its wide current account deficit and its increasing debt. There is always the risk that the tributaries will dry up; the state has only $ 85 billion in gross foreign exchange reserves.
Since the election of Adalet ve Kalkınma Partisi in 2002 , the economic policy on which these trends are based has increasingly been controlled by Erdoğan. From 2008, in particular, the focus was on the construction industry, state-awarded contracts and funding measures; Education, research and development were neglected. According to the general secretary of TÜSIAD , the motive for this policy was that Erdoğan had lost faith in western capitalism since the financial crisis in 2008.
Investment inflows had already declined in the pre-crisis period as political disagreements existed with countries that were the main sources of such inflows; about Germany, France and the Netherlands. The country's political instability after the attempted coup in Turkey in 2016 deterred many foreign investors. Other factors were concerns about the falling value of the lira, which threatened to weigh on investors' profit margins. Investment inflows have also declined because Erdoğan's increasing authoritarianism is increasingly suppressing free and factual reporting by financial analysts in Turkey.
By the end of 2017, the foreign currency debt of companies in Turkey had more than doubled since 2009.
Erdoğan's role
Economists generally blame Erdoğan for the accelerating depreciation of the lira from the beginning of August, who prevented the Turkish central bank from making necessary interest rate adjustments. Erdoğan replied that interest rates beyond his control are “father and mother of all evil”. In response to allegations that he exerts too great an influence on the central bank, he said that it would “of course” remain independent, but not “ignore the instructions of the president”. Erdoğan repeatedly justifies his approach religiously . He claims that interest-based banking is forbidden by Islam and that rate hikes are “high treason”.
Paul Krugman describes the crisis as “a classic currency and debt crisis, as we have seen it many times.” In times of such crises, “the quality of leadership suddenly becomes very important.” It needs officials “who understand what is going on , develop an answer and have enough credibility that the markets give them a leap of faith. ”Some emerging economies have“ these things, and they get through such turmoil pretty well. ”Erdoğan's regime, however, has none of this.
In July 2019, Erdoğan fired the head of the Turkish Central Bank, Murat Cetinkaya, whose interest rate policy he did not agree with. The decision met with criticism.
course
End of 2017
The end of 2017 is considered to be the beginning of the crisis. Here the inflation rate rose to around 13% and was thus higher than it has been since the financial crisis in 2007 . Initially there was only a slight devaluation of the lira, later the rate fell more rapidly. Erdoğan's refusal to allow the Turkish central bank to raise key interest rates is seen as the main reason for the ever-increasing decline in the currency. Such interventions in financial policy are possible for Erdoğan because the measures taken after the attempted coup in Turkey in 2016 increased his political influence.
From May 2018
From May 2018, the lira's currency depreciation accelerated massively after it exceeded the five lira per euro mark. The Turkish central bank was only able to prevent an excessive fall in May thanks to a significant increase in key interest rates from 13.5% to 16.5%. In view of the deteriorating economic situation, Erdoğan decided to bring the elections planned for 2019 forward to June 2018. The presidential and parliamentary elections were clearly won by Erdoğan's ruling AKP , which thus had a clear parliamentary majority. But despite these clear political conditions, the rate of the lira could not stabilize; instead the value fell further. The president's statement that "interest rates [in Turkey] would be seen to fall in the near future [...]" contributed to a massive escape from the lira.
From August 2018
The punitive tariffs imposed by the US government under President Donald Trump in the wake of the arrest of the US pastor Andrew Brunson in Turkey led to a further decline in the value of the lira. The inflation rate rose to 18% in August. Lira sales by investors peaked on August 10, 2018, when the Turkish currency lost 19 percent of its value against the US dollar. At that time, almost eight lira were paid out for one euro. The crisis calmed down briefly after the central bank made emergency liquidity available to domestic banks , Turkish finance minister Mehmet Şimşek referred to the independence of the central bank and Qatar invested around US $ 15 billion in Turkey. Shortly thereafter, trading in the lira was paused for a week to prevent further price losses. However, this measure proved to be ineffective; the currency almost fell to the August 10 lows after it was released. At the beginning of September the currency stabilized for the first time.
The rate of the lira normalized again from September. Nonetheless, the Organization for Economic Co-operation and Development (OECD) forecast the Turkish economy to shrink in 2019; gross domestic product should decline by 0.4% after increasing by 4.41% in 2018.
Individual evidence
- ↑ Perspective | Turkey's economy looks like it's headed for a big crash. Accessed August 27, 2018 (English).
- ^ Turkey's Lessons for Emerging Economies - Caixin Global. Accessed August 27, 2018 (English).
- ↑ Subscribe to read. Retrieved August 27, 2018 (UK English).
- ↑ Erdogan Is Failing Economics 101. In: Foreign Policy. Accessed August 27, 2018 (English).
- ^ Life in Turkey Now: Tough Talk, but Fears of Drug Shortages . ( nytimes.com [accessed August 27, 2018]).
- ↑ After the currency collapse: the lira recovers - but the news is by no means the all-clear for the economy . ( handelsblatt.com [accessed November 30, 2018]).
- ↑ Turkish real estate ills reflect Erdoğan's snap poll decision | Ahval . In: Ahval . ( ahvalnews.com [accessed August 27, 2018]).
- ↑ İşte köprü gerçekleri . ( com.tr [accessed on August 27, 2018]).
- ^ How Turkey fell from investment darling to junk-rated emerging market . In: The Economist . ( economist.com [accessed August 27, 2018]).
- ↑ Turkey's current account deficit at $ 5.4 billion in April. Accessed August 27, 2018 (English).
- ↑ A Crazy $ 200 Billion Says Erdogan Wins His Election Bet. Retrieved August 27, 2018 .
- ↑ A Big Chill Has Silenced Turkey's Market Analysts. Retrieved August 27, 2018 .
- ^ Turkey's Bill for Debt-Fueled Economic Growth Starts to Fall Due. Retrieved August 27, 2018 .
- ↑ Ali Kucukgocmen, Behiye Selin Taner: Turkey's Erdogan calls interest rates "mother of all evil"; lira slides . In: US (English, reuters.com [accessed September 1, 2018]).
- ↑ Perspective | Turkey's leader is helping to crash its currency. Retrieved September 1, 2018 .
- ↑ Reuters Editorial: Rise of Turkish Islamic banks chimes with Erdogan's ideals . In: US ( reuters.com [accessed September 1, 2018]).
- ↑ Perspective | Turkey's economy looks like it's headed for a big crash. Accessed August 27, 2018 (English).
- ↑ Opinion | Turmoil for Turkey's Trump . ( nytimes.com [accessed September 1, 2018]).
- ↑ Recep Tayyip Erdogan fires the head of the central bank because he doesn't spurt gmx.net from July 7, 2019, accessed on July 8, 2019
- ↑ Turkey is struggling with massive price increases . Spiegel, accessed September 1, 2018.
- ↑ Turkish lira plunges to record low . Spiegel, accessed September 1, 2018.
- ↑ Lutz Reiche: Erdogan pushes the Turkish lira to a record low. In: Manager-Magazin.de. July 12, 2018, accessed September 1, 2018 .
- ↑ Turkish lira: the crash increases the inflation rate - manager magazin . In: manager magazin . ( manager-magazin.de [accessed September 4, 2018]).
- ↑ Lira: Turkish currency loses 19 percent after new US punitive tariffs - manager magazin . In: manager magazin . ( manager-magazin.de [accessed September 4, 2018]).
- ↑ Turkey - Economic forecast summary (November 2018) - OECD. Retrieved November 30, 2018 .