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Turkish Economy Under Threat As Currency Plummets

May 27th, 2018 Comments off

The Turkish currency, the Lira, has lost significant value in a only a few months, reflecting the overall vulnerability of Turkey’s economy, which is plagued with corporate debt and a massive current account deficit.

The mercurial and authoritarian president of Turkey, Erdogan, is facing an election in which he hopes to further enhance his already powerful political grip. His strategy  is to play the populism card, and lash out at foreigners, including the United States, European Union and Israel. Part of this approach is blaming the “interest lobby,” and in a shocking display of bad economic sense, Erdogan, while on a visit to London, told foreign investors that after the election, he would subvert the independence of Turkey’s central bank.

The moves by Erdogan spooked global investors, leading to further erosion of the Lira. Reality briefly surfaced in Ankara, with even the Erdogan regime conceding that the central bank had to rush in an emergency interest hike of 300 basis points. This led to a temporary stabilization of the Lira.

After the election  Turkey faces political and economic uncertainty. The growing authoritarianism of Erdogan threatens the  foundation of Turkey’s economy, and there exists a major danger that after the election, the Lira will go into free-fall as foreign and domestic investors flee Turkey’s increasingly fragile currency.