Tag Archives: Turkey

Turkish gotta tweet

Last Thursday, Turkish government has placed a ban on Twitte, and shortly after, on YouTube.  This action has provoked widespread fury in Turkey, and condemnation around the world. All these thanks to Turkey’s Prime Minister Recep Tayyip Erdogan, who blames social media for “fueling anti-government rhetoric”, threatened to “wipe out” Twitter at a campaign rally on Thursday. “Erdogan and his government have targeted social media with accusations that they are interfering with investigations into corruption at the highest levels in Turkey.”

The main cause of this incident was that Twitter users had posted links to audio and video recordings of incriminating statements by top Turkish government officials and Erdogan associates, including his son, Bilal.

The leaked recording purports to show a conversation where Turkey’s foreign minister, spy chief and a top general appear to discuss scenarios which could lead to a Turkish attack against Jihadist militants in Syria. The two-part video had been watched more than 170,000 times on YouTube world-wide as of early evening in Istanbul. The two videos were the most-shared videos on Turkey’s YouTube on Thursday, according to the video site’s own trends monitor.”

The Turkish government’s ban on access to the Twitter social media site violates citizens’ right to free expression and access should be immediately restored, the country’s Constitutional Court ruled Wednesday. “Everyone has the right to express and disseminate his thoughts and opinion by speech, in writing or in pictures or through other media, individually or collectively,” the high court said in citing Article 26 of the Turkish Constitution.

How this is hurting Turkish government? In a few ways that Erdogan may not have foreseen. Not only did it enrage the citizens and drew much criticism worldwide that could cost his upcoming election, A spokesman for Britain’s Foreign Office suggested this incident may harm Turkey’s long-held hope of becoming a member of the EU. “We have long supported Turkey’s accession to the EU. As a candidate country, it is important for Turkey to promote the EU’s core values of freedom of expression, democracy and the rule of law.”

In addition, this may cost some confidence in Turkish economy. The economy is what underpins Erdogan’s popularity, and the Twitter ban could come back to bite him if his capricious misuse of this law scares off foreign investors and undermines confidence in the Turkish economy.

I would say this was not Erdogan’s best decision. Not many country can control freedom of speech the way China and North Korea can. But one needs to admit, it’s been pretty effective in retaining governmental control.

 

 

 

Is Turkey Doomed for Euro-Failure?

On Friday, Standard & Poor’s lowered Turkey’s credit rating to “negative,” from “stable.” Since last May when the Fed began to talk about cutting back on its stimulus program, the Turkish Lira has lost around a third of its value (against the dollar). This led to investors taking their money out of Turkey (and other emerging markets) and putting it in the United States – expecting higher interest rates in the US. Since December political troubles surrounding Turkish Prime Minister, Recep Tayyip Erdogan, have prompted a rapid “stampede” of out-flowing money which accounted for nearly half of the Lira’s decline.

The problem with Turkey’s economy is its heavy reliance on foreign borrowing. In the past few years, it has been borrowing to fuel a massive building boom. Turkish companies borrowed $130 billion in foreign currencies (according to the IMF). These loans came with low interest rates, but also with higher risk. Today, that risk is being felt. As the Turkish Lira devaluates, it becomes Turkish companies have to pay back more expensive loans. The inevitable fear is that these companies will not be able to pay back these loans, as the Lira weakens, and hundreds of companies will go out of business. Turkey’s dependence on dollar and euro transactions make it a very unstable economy – controlled by factors outside of the country itself.

But is Turkey going in the same direction as Spain and Ireland? It almost seems this way, but not quite – at least not for now. For one thing, the Lira seems to be holding on just enough. Two weeks ago, it hit its low. The next day, the currency strengthened 10% against the dollar. That same day, Turkey’s central bank announced it was raising the overnight lending rate to 12%, from 7.75%. Other lending and borrowing rates were also increased, including its one-week repo rate (the discount rate at which a central bank buys back government securities from banks) up to 10%, from 4.5%. Investors say that this is the central bank’s strongest tool. At its low, the Lira traded at 2.2522 per dollar. Today, the currency is valued at 2.21418 per dollar. This is hardly a huge improvement, but at least it’s in the right direction.

Unlike Spain and Ireland, though, Turkish experts insist that there is no housing bubble in Turkey. One of the reasons being that nearly half of the country’s population of 81 million is under the age of thirty. They believe this produces a steady demand for housing, which has much logic to it. Also, experts indicate that banks require high down payments. This means that the proportion of house-prices that have to be borrowed is relatively low, so prices have to fall quite a ways before homeowners owe more than their houses are worth. Also, the rising inflation rate makes it unlikely that housing prices will decline significantly.

However, Turkey still faces major problems. Its dependence on foreign loans coupled with political and social troubles, as well as a weakening currency, mean that the country has to be actively avoiding economic turmoil. Thankfully though, the Turkish central bank seems to be handling this better than, say, Spain did.

(Revised) Turkish Lira in Trouble Again

The central banks in many of the emerging market countries (Turkey, South Africa, India) have jacked up interest rates in an attempt to stop the slide in their currency’s value relative to the dollar. Idealistically, rate increases will stabilize the market and draw buyers back in.

The sell off by investors started last week after Chinese manufacturing reported a slowdown and has continued since then. Turkey made headlines last night after their midnight meeting concluded when they spiked up the emergency interest rate from 4.5% to 10%. While recovery seemed hopeful at first, the currency issue did not see much improved after a few hours.

First a little back story:

Turkey’s economy has been booming up until now. However, for approximately 20 years before Prime Minister Recep Tayyip Erdogan took office, inflation was very high in the country. Many Turks were generally unfaithful of their currency and would usually exchange/invest in the US Dollars or rare minerals like gold or silver with the intention of protecting themselves from inflation. In 2005, Erdogan put policies to stabilize inflation. The lira faced renomination, erasing six zeros essentially, followed by many inflation controlling policy. The Turkish people gained confidence once again with the lira and things were great with a fast growing economy and a below $2 exchange rate with the U.S. With the recent shift in the exchange rate once again, the Turkish people’s expectation for inflation may skyrocket, repeating the fresh-in-mind problem that many of them had suffered 20 or so years before. Expectation for inflation is a self-fulfilling prophecy. So in addition to this short-term problem, Turkey may fall into a much greater heap of troubles. Erdogan, in his third term, hopes to instill confidence to prevent a loss of trust in the lira. Erdogan has been publicly against an “interest rate lobby” despite the recent gusty spike, worried that it will choke Turkish growth. Once again I think this interest rate spike was necessary, but not sufficient. Uncertainty clouds the mind of many investors.

Paul McNamara, a large emerging-markets debt portfolio manager at GAM in London, showed a lot of uncertainty when sharing some his takeaways. He cites when the Euro was in trouble in 2012 and Mario Draghi reassured investors that the European central bank would do whatever it takes to keep the Euro.

“This is definitely not a Draghi moment that changes everything. It’s not 100% clear that this will work; stresses in Turkey are driven by fundamental factors. It takes Turkey in the right direction, but this could be grotesquely painful for the domestic economy. The chance of a run on Turkey is significantly lower, but it is still possible.”

Francesc Balcells, same job as McNamara but with more assets at Pacific Investment Management Co., shared much more insightful information saying:

“The rate hike makes more difficult for people to sell the lira, but this doesn’t mean necessarily people are coming in.”

“Let’s face it, the external environment is not generous with heavy borrowers with large current-account deficits. The Turkish central bank did the right thing but ultimately this was necessary but not sufficient.”

My recommendation is that Turkish government ensures faith in the Lira for its citizens who remember the hyper inflationary times not too long ago. The central bank should ensure compensate for inflation, protect its currency, just whatever it takes to prevent its citizens from investing in the US Dollar or gold. Hopefully, Turkey won’t fall back into another high inflation time. Their goal of improving their currency exchange rate was helped with the exchange rate spike, but the issue of inflation and an ever-growing deficit may still put-off potential investment from people like McNamara and Balcells. The vast economic improvement in Turkey after Ergodan did amazing things for a country that has, since it’s founding, had very strong ties to the West. Diversifying to Eastern markets has restored much of the confidence and prosperity by opening up new doors. The emerging markets deserve to recover sooner than later for the sake of improved standards of living around the world and a stable global market.

 

Turkey Lira in Trouble Again

The central banks in many of the emerging market countries (Turkey, South Africa, India) have jacked up interest rates in an attempt to stop the slide in their currency’s value relative to the dollar. Idealistically, rate increases will stabilize the market and draw buyers back in.

The sell off by investors started last week after Chinese manufacturing reported a slowdown and has continued since then. Turkey made headlines last night after their midnight meeting concluded when they spiked up the emergency interest rate from 4.5% to 10%. While recovery seemed hopeful at first, the currency issue did not see much improved after a few hours.

First a little back story:

Turkey’s economy has been booming up until now. For approximately 20 years before Prime Minister Recep Tayyip Erdogan took office, inflation was very high in the country. Many Turks were generally unfateful of their currency and would usually exchange/invest in the US Dollars or rare minerals like gold or silver with the intention of  protecting themselves from inflation. In 2005, Erdogan put policies to stabilize inflation. The lira faced renomination, erasing six zeros essentially, followed by some inflation controlling policy. The Turkish people gained confidence once again with the lira and everything was fine with a fast growing economy and a below $2 exchange rate with the U.S. With the recent shift once again, the Turkish people’s expectation for inflation may skyrocket, repeating the fresh-in-mind problem that many of them had suffered 20 or so years before. So in addition to this short-term problem, Turkey may fall into a much greater heap of troubles. Erdogan, in his third term, hopes to instill confidence to prevent a loss of trust in the lira. Erdogan has been publicly against an “interest rate lobby” despite the recent gusty spike, worried that it will choke Turkish growth.

Paul McNamara, a large emerging-markets debt portfolio manager at GAM in London, showed a lot of uncertainty by sharing generic information. He cites when the Euro was in trouble in 2012 and Mario Draghi reassured investors that the European central bank would do whatever it takes to keep the Euro.

“This is definitely not a Draghi moment that changes everything. It’s not 100% clear that this will work; stresses in Turkey are driven by fundamental factors. It takes Turkey in the right direction, but this could be grotesquely painful for the domestic economy. The chance of a run on Turkey is significantly lower, but it is still possible.”

Francesc Balcells, same job as McNamara but with more assets at Pacific Investment Management Co., shared much more insightful information saying:

“The rate hike makes more difficult for people to sell the lira, but this doesn’t mean necessarily people are coming in.”

“Let’s face it, the external environment is not generous with heavy borrowers with large current-account deficits. The Turkish central bank did the right thing but ultimately this was necessary but not sufficient.”

Hopefully, Turkey won’t fall back into another high inflation time and the emerging markets recover sooner than later.

Impact of Biggest Economies on Developing Countries

In the past decade, there has been much talk about emerging markets and their immense growth. Developing economies have been receiving a great deal of attention from investors, speculators, and wealthy governments. However, it is rarely discussed how much these economies depend on the actions of the biggest players in the global economy. Recently, shifts in China’s and the United States’ economies have greatly impacted emerging markets. Notably, Turkey and Argentina have been hit hard. An article in the New York Times (Economic Shifts in the US and China Batter Markets) states that “the ascent of developing countries over the last decade has been fueled by two global trends: the steady rise of China and the willingness of the Federal Reserve to stimulate the economy.”

This week saw the first sustained drop in the United States stock indexes in 2014 (Standard & Poor’s 500-stock index dropped 2.1% Friday) – resulting in the worst week since June of 2012. More importantly, developing economies are most affected by the Fed’s decision to start pulling back on the bond-buying stimulus programs. These have helped to keep interest rates low around the world – on which many countries relied for low borrowing costs. Now they may face an increase in borrowing costs and a difficult period to readjust. Also, this may cause investors to pull their money out of emerging economies and into the recovering economies in the US and Europe, which may yield higher returns.

Turkey will be especially affected by the Fed’s decision. The country had used the Fed’s low interest rates to pay for a building boom. If interest rates increase, it is unclear whether Turkish businesses will be able to repay loans. Besides this, the country is facing a difficult political situation – which is also hurting business confidence. The fate of Turkey largely depends on the Fed’s future decision on whether to pull back on its bond-buying programs.

Though the Fed’s actions play a huge role in the world, the biggest impact is expected to be seen in places that rely heavily on the demand for raw resources in China. Chinese economic growth is slowing, and the second-largest manufacturing sector has been contracting for the first time in six months. Brazil’s soybean industry and Mozambique’s nickel production will be a few of those heavily impacted.

Argentina’s current situation has much to do with the US dollar. Another article in the New York Times (Erosion of Argentine Peso Sends a Shudder Through Latin America) explains that the Argentine government had previously tried to restrict access to foreign currency after nationalizing YPF (the country’s biggest oil company) and seeing the people wanted to take their money out of the country. This week, though, the government decided to ease access to buy US dollars. The result was a 20% drop in the value of the Argentine peso. Much of the drop in the value of their currency has to do with the speculation and distrust of their government. People are fed up with power-outages during extreme heat waves, rampant inflation, and a seemingly-incompetent government.

Thus it is evident that the emerging economies over the past decade rely heavily on the actions of the biggest global economies. This is strikingly obvious, really. But I don’t think we realize the extent to which they are affected. The fact that Turkey’s growth may slow down because of the Fed’s decision on bond-buying programs, is pretty crazy to think about. And the fact that a shift in China’s economy (slightly away from manufacturing) can impact economies around the world, who provide raw materials. Finally, the impact of the US dollar everywhere – it is bought and sold all over the world and is often a point of contention in other countries (like Argentina).