Rough times for the Turkish economy

Rough times for the Turkish economy

The upcoming trial of the Turkish-Iranian businessman in the U.S. causes concern for possible sanctions against Turkey.

The Turkish economy is being struggling to stay afloat, with the Turkish tumbling down against the dollar and the euro in recent days, inflation is galloping into the shadow and all this in the light of a trial opening in the U.S. the case of which includes persons close to Turkey’s President, Recep Tayyip Erdogan.

Within only one day, the Turkish lira has fallen 1.4% against the dollar. Over the past ten days, the depreciation has gone over 7% with economists worrying that worse days might be close. Turkey’s currency appears weaker also against the Euro weakened to 4.67 per Euro.

Yet again, the Turkish Central Bank (Merkez Bankasi) had to intervene in the Turkish market but without any particular results. At the same time, inflation has exceeded 11% and devaluation is expected to exacerbate inflationary trends.

The devaluation of the Turkish lira causes turbulence not so much to the Turkish public sector but to the private one. Turkey’s total external debt reaches $ 412 billion. Thirty per cent of it is of the Turkish state. The rest of it is of Turkish banks and big local companies that have borrowed in foreign currency. The dramatic devaluation of the lira has heavily burdened their balance sheets, resulting in their difficulty to serv their debts.

One characteristic example is the largest telecom operator Turk Telekom, which failed to serve its $ 5 billion bank loans, prompting re-negotiation while, simultaneously it is causing generated fears connected with the overall state of the country’s economy.

The concern of Turkish economists is growing further also due to the structural problems of their economy, since production cannot meet demand and imports are growing at a terrifying rate. In October 2017, the trade deficit increased by 74.5% compared to the same month in 2016, reaching $ 7.5 billion.

The political issue that causes panic

The case of the Turkish-Iranian businessman Reza Zarrab is creating political uncertainty. Although the entrepreneur in question was seemingly dealing with the trade of gold, he was actually helping Iran break the international embargo against it, through companies and banks in Turkey.

In 2016 he was arrested by the American authorities but in the past days he has gone missing. Rumours want him to closely collaborating with the authorities, only days before his trial kicks off, on December 4, 2017. He is accused of bribing Turkish officials. Allegedly, he was helping Tehran handle revenues from oil sales in dollars, through the Turkish state Halkbank. Transactions appeared legitimate since the gains came from food sales. The deputy chief executive of Halkbank is also jailed in the United States and is accused of helping Zarrab.

American authorities’ main question, however, is whether Zarrab had informed Erdogan about his activities since he had donated large sums to charities controlled by his wife and son. Still, this is not evidence of guilt. What truly concerns Ankara is what more could Zarrab tell the U.S. authorities (about Turkey).

Recep Tayyip Erdogan argued that “the same conspiracy had been attempted in 2013 too”. Back then, Zarrab had been arrested in Turkey charged with the bribery of four government ministers. Following the change of prosecutors, the businessman was released and the government had accused imam Fethullah Gulen of a conspiracy based on fake evidence against Erdogan…/IBNA