Rising Dollar Collateral Damage: Turkey

The rising dollar in 2018 will be like a flame to gasoline in emerging markets. Countries that ran up credit growth during the correction (more specifically their currencies) will have "accidents."
Bloomberg 2017: Why Erdogan Is Flooding Turkey’s Economy With Credit

Since last year’s foiled coup, which triggered emergency rule, Turkey has expanded state guarantees to rush about $50 billion of lira loans to almost 300,000 businesses with little transparency over how the money is spent. The government has also pooled about $200 billion of assets into a wealth fund. That’s so it can borrow against its stakes in companies like Turkish Airlines and Turk Telekom to build popular big-ticket infrastructure that will further swell a budget deficit that’s already projected to be the highest since 2010.

Officials have even proposed letting banks securitize their total loan book of $515 billion to finance more lira lending, though they’ve already dispersed 50 percent more than all deposits in the national currency, the most of any major economy. While a 22 percent surge in credit since the failed putsch is helping fuel 5 percent headline growth, which Erdogan has trumpeted as a vindication of his policies, it’s also threatening to prolong double-digit inflation.

CNBC 2018: Turkey’s currency is tanking and President Erdogan is keeping it down

Turkey's lira has hit record lows for the past week, thanks to what analysts say is the Turkish government's unwillingness to balance monetary policy to counter double-digit inflation.

And the fall has been accelerated by geopolitical uncertainty over U.S. and Russian military actions in neighboring Syria.

Al Monitor: How Turkey's 'doping-induced' growth backfired into hasty elections>

The inadequate increase in interest rates against inflation fueled the foreign exchange rush among local and foreign money holders, pushing prices even higher and further disrupting economic balances. On April 25, the Central Bank finally moved to raise its key interest rate, but even the 75-basis point hike was by then inefficient in curbing the foreign exchange.

On top of this, growth and rising interest rates in the United States have led global funds to start pulling out of emerging countries such as Turkey, which has the added disadvantage of a growing risk premium due to its involvement in the Syrian war. A repressive state of emergency in place since the failed coup attempt in July 2016 has been another major drawback and has irked the business community. The Turkish Industry and Business Association, the country's leading industrialist group, has frequently complained that the state of emergency is scaring off foreign investors, but to no avail.



Read more: http://www.al-monitor.com/pulse/originals/2018/05/turkey-high-growth-backfired-into-hasty-elections.html#ixzz5EozHbKeB