by Serban V.C. Enache
The financial picture looks like this:
Turkish Government debt: 28 percent of GDP in 2017, and has been falling for several years. Private sector debt is 170 percent of GDP – and roughly 35 percent of that is denominated in foreign currency. Turkish nominal GDP growth has been solid for several years, even reaching the double digit mark. Diesel fuel consumption jumped from over 15 million cubic meters in 2008 to almost 50 million in 2018.
Brent crude prices in Lira and USD are telling… it’s the main mechanism that delivers inflation.
While the sectoral balances bleep caution (private sector deleveraging ahead), the Lira’s depreciation doesn’t stem from market fundamentals in my opinion, but from geopolitical considerations.
Things have been going south since ’16, with the failed US backed coup. I think the big market players are really interested in the geopolitical dynamics and the political stability within Turkey, and not so much with spread sheet analysis. US has levied sanctions and tariffs. If they won’t settle, what will happen? Turkey NATO exit or anarchy? Western or Western-aligned investors will or would want to take off and cut their losses.
I’ve several reasons to believe that the failed coup in Turkey was ordered by the US Deep State. The most obvious reason is that Washington didn’t condemn the coup when it hit the news. Condemnation occurred only after it became public knowledge that it had failed. The US is very quick to launch signals to its ‘colony’ states when the prospect of certain projects or policies isn’t to their liking. My country, Romania, is a great example of this – in which the US ambassadors have a track-record of preaching to political majorities what to do and what not to do. Recently, the current US ambassador held a private meeting with the Minister of Justice and the Chief Prosecutor. But let’s get back to Turkey in 2016. If a coup happened to an ally you considered an asset, you’d have condemned it in the first minute. But if you considered that ally a liability, you’d wait and see who wins – the (upstart) establishment or the (potentially promising) rebels. After he survived the coup, Erdogan demanded from the US the extradition of Fethullah Gulen, to be tried in Turkey for alleged involvement in the coup. The US refused the wish of a so-called allied state (NATO member), even though Gulen is a Turkish citizen, not an American citizen.
To the point, another escalation in geopolitical tensions (and later more Lira depreciation against the USD) was Erdogan’s decision to buy certain military output from Russia – the S400 missile shield defence system, the purchase of which was finished in November last year. This led to the US prepping trade sanctions, sanctions which have been enforced under the pretext of human rights and patriotism. When the IDF kills US citizens, US political elites don’t murmur anything at home or to Israel – not even a ‘be more careful next time.’ The official motivation that the US is imposing tariffs on Turkey because it wants to rescue an American citizen detained there is just empty PR, unfortunately believed by many cretins.
In believe Turkey’s inflation problem will persist and it will only amplify itself should Washington and Ankara fail to negotiate something. It’s not about monetary policy, the Turkish CB not doing this or that, or about Turkey’s private sector not being good for it (with or without Government support, which we all know it gets anyway). In 2009, Romania was faced with private debt inflation, fuelled to a good extent by borrowing in foreign currency. The then Basescu Government grabbed a loan from the IMF under the lie that ‘it’s just a safety measure, we won’t actually use the money’, and he imposed harsh austerity measures afterwards. Prior to this, during the real-estate and credit boom period, Romania didn’t experience the type of inflation Turkey has seen and is seeing. So the geopolitical tensions are the fundamental reason behind Turkey’s plight with galloping prices – because under peaceful relations with the Hegemony, this wouldn’t be happening. The real question here is whether or not Erdogan’s Government will have enough support to weather the storm. He’ll need outside help that’s for sure, and that support will come from the East if it comes at all. If he loses political stability, the Lira will be toast. If he maintains stability, the Lira will stabilize sooner rather than later.
Turkey was a great agent for the US to contain both Europe and Russia. Time will tell if that card is still in the Yankee deck or not.
Serban V.C. Enache is a Romanian journalist and indie author. Though interested in history, politics, and economics, his true passion is for medieval fantasy fiction. https://www.amazon.com/Serban-Valentin-Constantin-Enache/e/B00N2SJD6O/ He can be reached over Twitter. https://twitter.com/SerbanVCEnache