The Turkish economy is burning, so much that it could melt

By Peter S. Goodman

New York Times Press Service

It will be like a threatening fortress on the Black Sea: the new airport in Istanbul was designed to amaze and emphasize the desire to Turkey to claim its glory

The project is expected to cost about US $ 12 billion and six lanes on land as large as Manhattan. When construction is completed in ten years, the complex will theoretically transport about 200 million people a year; He will humiliate all his rivals by being the busiest airport on the planet.

However, the airport has also become a symbol of a less pleasant aspect of Turkey's modern reincarnation: its stupid indifference to arithmetic and independence. basic government institutions. Together, they exposed the nation to a growing risk of suffering a financial crisis.

In a global economy increasingly concerned about the problems – from the ongoing trade war to rising oil prices – Turkey could be the most immediate cause of the alarm. On Monday, the country's president, Recep Tayyip Erdogan, who dominated national life for fifteen years, was once again invested after winning the victory during a reelection that gave him new and extraordinary powers. It has exerted its influence to generate relentless economic growth through uncontrolled lending, which has brought the levels of debt to alarming levels. In addition, it is expected that the additional authority that has been provided will further test the limits of economic reality.

In an ostentatious signal of concern among the world's investors, this year the value of the Turkish currency, read it, dropped by nearly a fifth, which raised both the price of housing and business. Monday, he fell a little more, when Erdogan told his son-in-law the position of economic director, and the markets interpreted it as a sign that he does not intend to adopt a model of more responsible management.

– its first stage will begin in October – was born thanks to public funds allocated to construction companies close to Erdogan. The government has given guarantees in case of losses. If the airport turns out bigger than the flow of pbadengers – as many economists expect – the city will eventually pay the bill.

Turkish Economy

NYT

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For the villagers who were evicted from their land to make way for the new airport, the project became a monument to their worst nightmares.

"Erdogan only cares about his people," said Bora Dayilar, a farmer whose pasture was included in the project. "They did not leave us with anything."

Doubts

Fears of a disaster may seem out of place in an economy that remains one of those who add more growth to the planet: increased by 7.4% last year. However, this growth is due to loans that are not viable, whether they are public or private.

The government has subsidized huge infrastructure projects such as the airport and a 45-kilometer cbad at a cost of $ 13 billion. which connects the Black Sea to the Sea of ​​Marmara. In addition, many companies have borrowed in foreign currency, which means that their debt burden has increased as the value of the lira decreases.

Currently, major Turkish companies are seeking to persuade banks and other creditors for forgiveness, perhaps because they foreshadow a wave of bankruptcies that could be causing heavy losses for financial institutions and taxpayers.

Since the end of April, private sector enterprises in Turkey, they owe more than 245 billion US dollars of external debt, or nearly a third of the total size of the economy of country

"This is a huge number," said economist Selva Demiralp. for the Federal Reserve Bank in Washington and is now a professor at Koc University in Istanbul. "And the government is encouraging them to ask for more loans."

To face this debt, it is necessary that foreign investors continue to deposit funds in Turkey, an increasingly debatable proposition.

Ask for money if you continue to raise interest rates, which are already 17.75%. However, this would weaken economic growth and put an end to the festivities for the real estate and construction sectors

Inflation, another problem

L & rsquo; Another possibility is that Turkey keeps the growth part while observing how inflation increases as the pound continues to fall. This could be a bankruptcy conviction for crucial companies and could force the government to seek a bailout from the International Monetary Fund, which would surely lead to painful cuts in spending.

"Turkey could be the next country to disintegrate," said Marie Owens Thomsen, chief economist at Indosuez Wealth Management in Geneva. "It has all the ingredients of the beginning of a failed state" .

Some of Turkey's problems reflect those generally experienced by emerging markets.

As the Federal Reserve Increases Interest Rates In the United States, investors took money from developing countries such as Argentina, Mexico and Turkey and, at the same time, opted for the dollar.This situation decreased the value of currencies in emerging markets

however , Turkey stands out as a particularly vulnerable economy because of its unorthodox financial management.

seeking to overthrow it two years ago, Erdogan has opened credit limits to ensure economic growth The central bank has sought to limit growth by raising rates to stabilize the pound and contain inflation. This caused the president's fury.

Erdogan has made sure that inflation is actually the result of high interest rates, which is no different than saying that chemotherapy causes cancer. Before the elections, Erdogan threatened to take control of the Turkish central bank and abolish high rates. Investors have taken this threat as another reason to flee, which has pushed the pound to historic levels.

The most vulnerable companies are those who have borrowed in foreign currency.

Four years ago, Makro, a National Supermarket Chain, decided to aggressively expand. He borrowed 200 million lire (at the time, about 88 million dollars) from seven Turkish banks and accepted interest rates of about 18%. In an attempt to limit the size of its debt, it borrowed an additional $ 12 million in US dollars, taking advantage of the fact that dollar borrowings had a participation of only 5%

. hiring more workers However, in mid-2017, the lira had lost more than a third of its value and interest rates in Turkey were increasing. The monthly payments of the company's debt had increased by nearly 50% to six million lire. At the same time, Makro's income collapsed as grocery store chains entered the market.

This year, with payments reaching a maximum of nearly nine million lire a month, Makro has requested a court-supervised debt restructuring. He recently got an agreement that allows him to repay his bank debts by selling real estate while getting the debt cancellation of his suppliers.

(Elif Ince collaborated with the report of Istanbul )

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