When the Prime Minister of a great country like Turkey open an investigation against international speculation that cripples the currency, it means that the damage is done. And if the premier accuses an unidentified identifies “lobby” to exploit internal protests, to which we have witnessed in recent weeks, for its financial purposes, it means that the country is on the brink of a precipice.
Instead what is happening in Turkey was widely expected. Even the euro-Asian country replicate the script that we have seen in recent years operate everywhere: large flows of money are directed to a country, in the form of direct or portfolio investment, because in this country you can check attractive returns. The country is going through a phase of euphoria, fueled by easy credit disbursed through these loans, and asset prices explode. All this raises the level of debt, especially the private sector. Then the capital flow out and the free ride is over. The currency comes under pressure, forcing the central bank to burn its reserves, until, inevitably comes to the devaluation.
It ‘happened to us, in Italy, in 1992.
Today it is up to Turkey. The Turkish Central Bank, write the Financial Times, was forced to sell 1.3 billion of foreign currency on a day to support the Turkish lira, which never ceases to weaken. But it was enough to see the latest balance of payments’s data available and the abundant reports published by the OECD and the IMF, to understand that this drift was inevitable.
Let’s start from the balance of payments. The current account balance, in January-May 2013, marked a deficit of almost € 32 billion, six more than in the corresponding period of 2012. The deterioration of the balance depends on the growing imbalance between imports and exports, and an increase of more than 1.5 billion of income paid abroad. For years, investors have respectable gain by buying bonds Turks. So much so that the portfolio investment liabilities, the money that Turkey has borrowed from abroad rose from 6.2 billion in January-May 2012 to 16 , 7 billion in the January-May 2013.
But it’s all the indebtedness of the private sector that has grown, both banking and corporate. In the first five months of 2013, banks had absorbed cash to $ 16.8 billion, compared to 10.8 in 2012, while the other sectors of 6.7 compared to 5.9 in 2012. This has had a devastating effect on the NIIP, the net international investment position, then the balance between assets and liabilities. The already robust deficit of 418 billion dollars at end-2012 was further aggravated, reaching a peak of 450.8 billion in April 2013.
This mountain of private debt have plunged the current account balance, which in 2011 was listed at 9.7% of GDP (which was about 1.1 trillion at current prices): the worst after that of the U.S.. And the forecast, the IMF is that the OECD is not at all reassuring. The Fund estimates that, after a decline in 2012, the current account deficit will return 8, 4% of GDP by 2018.
That being the case, it is no wonder that the Turkish lira miss. Never mind that Turkey has placed its public accounts, by adjusting its slope with the IMF and bringing the debt / GDP ratio to 40%. Also because this has been achieved largely by increasing private debt and the foreign market. And these are the quantities to which markets they refer, when evaluating the health of a coin.
In fact, a report by Goldman Sachs, quoted by Bloomberg, says clearly that “increased the risk of external shocks for Turkey, which pose potential threats to the exchange rate and financial stability itself”, while the level of the private debt was considered “unsustainable.”
So now the Turkish central bank is having to manage a complex situation to say the least, as explained by the IMF in an article entitled “Scenes from a Central Bank,” published on April 2. A classic dilemma: relax the liquidity, keeping interest rates low, at the cost of rising inflation and the weakening of the currency, or raise interest rates to keep constant capital flows, as the long-term debt is financed with short-term loans, to stabilize the currency and lower inflation. Only it does raise interest rates to cool growth. That is what Turkey does not need, given the current mountain of debt that has accumulated and that must somehow repay.
Even for Turkey, in short, reply the dilemma that we have seen work for the rest of the world: the one between imbalance and depression .
At present, the Central Bank has been limited to sell reserves to support the currency, which fell by more than 40 billion in recent months, rather than raise rates. But we know from our experience (1992), which in the long run not let him do it.
In this context, accusing the lobby and open investigations against the speculation looks like a desperate political move, on the day when the Turkish Lira comes to quoting 1.96 on the dollar. Disturb the international conspiracies use only to hide under a fog blurred instead what is clearly written in the financial statements: Turkey has paid dearly, and will continue to pay, the large growth in debt of which was the star in recent years.
The protest Gezi Park, in this sense, is figurative. The people took to the streets against the decision to cut the trees to make room for a shopping center, which is the best possible symbol of the great real estate boom (not to say bubble) that has engulfed the turkish market. The state is heavily intervened to shut the protest, which has not yet ended. But it is the same state that wanted this boom and now accuses the ” international powers” to exploit the protesters, accused of wanting to stop the growth, to destabilize the Turkish Lira.
Who is the cause of his illness should weep himself.
Do not shoot him.