RESULT OF END OF EASY MONEY...TURKEY

Chinese tune is going to spook slowdown and Turkey has just begun the music.  When easy money becomes a burden financial contagion spills over. Borrowed living or consumption as an individual and as a country is always costly and comes up always with a bailout.  Turkey ongoing chaos would lead to a massive problem for Europe and other countries.  According to Data from the Bank of International, Settlements indicate that Italy has $17 billion of the loan, France has $38.4 billion, UK has $19.2 billion, Germany has $17.1 billion and Spain has $82 billion and the top eurozone banks have combined total assets of more than 20 trillion euros. Much of these exposures are also lira in the balance sheets of local subsidiaries and the currency depreciation is spooking contagion effect on the repayment schedule in the long term. Several European financial institutions, including Spain’s BBVA, Italy’s UniCredit and France’s BNP Paribas, have significant operations in Turkey.   

According to  BIS cross-border figures also show that Japanese banks are owed $14 billion, U.K. lenders $19.2 billion and the United States about $18 billion. Turkey blames US for this carnage of Liar since they imposed Tariff on Turkey exports. Well when an economic growth is not balanced and not stable then any damage to the traditional economic policies would spook plunge for an economy.

The increasing trend of US interest rates has increased the outflow of capital for the country.  Turkey’s loans in US dollars account for around 30% of GDP and in euro it could be as much as another 20%. Turkey’s non-financial companies’ foreign currency liabilities now exceed their foreign exchange assets by more than $200bn. In the next 12 months alone, private non-financial institutions must repay or roll over $66bn in foreign currency debt. Well, the numbers now seem to be larger than what has been perceived.  Turkey’s banks, meanwhile, face a figure of $76bn.  In all, private companies in Turkey sit on a pile of debt equivalent to about 40% of GDP and in the past year. 

Turkey has been running huge and growing current account deficits, reaching $ 7.1 billion by January 2018, while the rolling 12-month deficit rose to $ 51.6 billion one of the largest current account deficits in the world. It has inflation hovering above 10% and the govt is not inclined for pushing up the interest rates. Around $350bn in foreign debt is being held by Turkey banks which lead to a contagion call on various asset classes. One of the prime characteristics of Turkey is that it has low savings rates. Just below 21% live under the poverty line. GDP is mostly made up of consumer activity, at 60%, but government activity is 15% of the total. It has unemployment rate of 12% the overseas lending is too much to its banks.

  When an economy does not invest properly within its own economic inequality is has to face uncertain times when traditional economic theories start changing. The Tariff Imposition era is one such activity where traditional economic theories are bound to collapse and it pinpoints very clearly towards the historical political failures in terms of designing economic policies. Only export oriented economic growth is not suffice for a stable long term economic growth.

The country has inbuilt some problems but it has now started blaming US for its tariff impositions. Getting into the details further its being found that The top export destinations of Turkey are Germany ($16.2B), the United Kingdom ($15.2B), Italy($8.26B), the United States($7.69B) and Iraq ($7.63B). 

Highest Value Turkish Export Products

Below are the 20 highest value export products delivered to international customers in 2017. Shown within brackets is the change in value for each exported product year over year.

1.       Cars: US$11.8 billion (up 41.4% since 2016)

2.       Gold (unwrought): $6.6 billion (down -19.9%)

3.       Trucks: $4.8 billion (up 5.3%)

4.       Jewelry: $4.1 billion (up 9.9%)

5.       Automobile parts/accessories: $4.1 billion (up 6.4%)

6.       Processed petroleum oils: $3.7 billion (up 31.6%)

7.       T-shirts, vests (knit or crochet): $2.9 billion (down -1.8%)

8.       Iron or non-alloy steel bars, rods: $2.6 billion (down -2.9%)

9.       Women’s clothing (not knit or crochet): $2.5 billion (up 9.2%)

10.   Insulated wire/cable: $1.9 billion (up 8.9%)

11.   Carpets, other textile floor coverings: $1.8 billion (up 13.6%)

12.   Refrigerators, freezers: $1.8 billion (up 3.6%)

13.   Jerseys, pullovers (knit or crochet): $1.8 billion (up 10.7%)

14.   Piston engine parts: $1.7 billion (up 7.1%)

15.   Public-transport vehicles: $1.6 billion (up 7.8%)

16.   TV receivers/monitors/projectors: $1.5 billion (up 4.5%)

17.   Men’s suits, trousers (not knit or crochet): $1.4 billion (down -5.9%)

18.   Hot-rolled iron or non-alloy steel products: $1.4 billion (up 70.5%)

19.   Miscellaneous furniture: $1.3 billion (up 1.9%)

20.   Miscellaneous nuts: $1.3 billion (down -5.8%)

Among these product categories, hot-rolled iron or non-alloy steel products posted the greatest year-over-year increase in Turkish export sales with a 70.5% gain in value from $832.2 million in 2016 to $1.4 billion during 2017.In second place were exported cars which grew 41.4%.Turkish exports of processed petroleum oils also showed a respectable gain of 31.6%. Leading the decliners were exported gold, down -19.9%.

The carnage is beyond currency now as a global asset class will be redeemed by taking advantage of the currency volatility and this would spook a sudden liquidity or profit booking in portfolios across the market.

When economic policies are ruled over by a government and desired economic initiatives are not taken then that spooks a massive blow to the system. Recep Tayyip Erdoğan who won the election during the campaign, he blamed external factors and their domestic collaborators for Turkey’s economic woes, which seemed to resonate with voters. They own the election blaming others and not focusing to improve domestically.  This is the place where economic disparity comes into play. When an economy does not focus on creating more job and keeps the economy alive on limited resources and constantly leverage the same then one day this type of collapse would happen. Borrowed living as an individual and as a country is always costly and comes up always with a bailout.