Blaming the nose-diving currency on an operation against Turkey, Turkish President Recep Tayyip Erdogen rejected the idea that the country’s financial conditions is in shambles. According to a strategist from J.P. Morgan Asset Management, the situation is really bad as the financial condition is deteriorating, unstable investor sentiments, and incompetent management of the economy and tariff pressures from U.S.A.
BEGINNING OF TURKEY’S PROBLEM:
Lately, Turkey was considered as one of the fastest growing economies in the world, even overtaking giants like China and India. Turkey reported 7.22 percent growth in its GDP in the second quarter of 2018. This growth was mostly driven by foreign currency debt. After the global financial crisis, central banks around the world were pumping money where as the Turkish banks and organizations were stacking up debt denominated in American dollars.
Since the taking a loan has driven consumption and expenditure resulting in running shortages in both its fiscal and current accounts. Currently, Turkey’s foreign currency debt has increased more than 50 percent of its GDP.
CONSEQUENCES OF TURKEY’S DEBT:
Turkey is not the only economy to enjoy twin deficits and increased amounts of foreign currency debts. Even Indonesia runs fiscal and current account deficits. But on the contrary, Turkey doesn’t possess large reserves like Indonesia which would salvage its economy when things go awry. Turkey’s reserves low in comparison to its $181 billion debt denominated in currencies other than the lira. Moreover, most of the foreign currency is maintai