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On exchange rate pressure in Turkey

32 16 0
11.01.2017

The currencies of developing countries, particularly the Turkish lira, are quickly losing value against the dollar these days. Does this also correspond to a real economic crisis for these countries? Should Turkey choose to become a debt and import economy again by increasing interest rates and keeping the lira overvalued, or should it take a new growth path based on production and exports with economic distress? Let me begin answering this question by saying what the U.S. is doing with the dollar, a basic reserve currency.

The U.S. has been trying for a while to reconsolidate its economy through the dollar. U.S. President-elect Donald Trump's recent statements reflect this consolidation. Trump asked American capital holders why they go to Mexico and invest there, iterating his insistence that they invest their capital in the U.S. The U.S.'s appreciation of the dollar with high interest rate expectations that depend on its concern about external financing is also related. But we cannot say that such a move is right for a power that maintains its claim to lead the world economy. This is because economic sovereignty is possible with the export of commodities and capital. An economy that does not export capital cannot rank among the central economies, let alone become the top economy in the world. In other words, the U.S.'s strategy, which is based on the overvalued dollar, is not suitable for the long-term.

But this cannot satisfy anybody in Turkey at the moment. There is a basic reserve currency; you establish commercial relationships with other countries using that currency and your own currency also depreciates against it. It is then necessary to question whether this exchange rate level will lead to a financial crisis for the public and real sector in Turkey. A couple days ago, Energy and Natural Resources Minister Berat Albayrak said there would not be a hike in energy prices in 2017. Even this alone shows that the public sector in Turkey is strong enough to resist increases in foreign exchange rates to the real sector and households, and that there are no exchange rate problems in the public balances. As for Turkey's external debt and exchange rate risk, we can say: Compared to the "total debt / gross domestic product (GDP)" ratios calculated from the financial accounts of selected countries, Turkey's gross total debt is about 40 percent of its GDP - which stands out as the lowest rate among other countries. On the other hand, as of the first quarter of 2016, the debt of general management, households and financial institutions in Turkey is on a much lower level than those of other countries. It is noteworthy that the debt of non-financial institutions is higher than some........

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