We can’t fall for temporary improvements
Sharp volatilities in the markets on Monday after tit-for-tat visa restrictions between the US and Turkey gave wave to a milder environment in the following days. As if our whole society are manic depressives. On Monday, we all jumped, crying ‘Alas!’, but just days later, after seeing some kind of recovery, we started to say, ‘See? Visa restrictions can’t harm us. It was just a oneday issue.’ On Monday, we acted as if it was apocalypse and on Tuesday were the happiest country on earth and had impressive self-confidence. But it’s not a thought without reason. It’s partly due to the nev- er-changing attitude of our politicians. As the visa crisis burst open, we witnessed politicians pursuing a familiar ‘nothing will happen to us’ approach, such as:
“The Turkish economy is sound as a barrel…”
“They act like this as they don’t want us to develop…”
They acted as if we were a rival for the US on any subject – especially the economy – and as if the US made the visa decision because of this rivalry.
Trend lack ng pos t ve s gns
The Turkish economy has been experiencing a series of difficulties. Let’s assume we don’t have any problems and everything is fine. Just this crisis with the US matters a lot on its own. Don’t fall for markets recovering in only one day. We should see the big picture.
Turkey will achieve a relatively high growth rate this year with the base effect of the previous year. We may even see a double-digit growth rate in the third quarter. But what about 2018? Turkey is a country with insufficient savings and has to attract foreign savings. But from which countries can we attract funds if we bicker with Europe like we have been and almost sever relations with the US? Or what will be the new borrowing cost of those funds compared with the past?
After almost every tension, it has became an habit to look back directly to the increase in foreign exchange rates . ... Regardless of relevance, foreign exchange rate rises provide the basis for price increases and allows everyone to present socalled reasonable grounds for those price increases. If you ever mention a price increase of a good or a service, the forthcoming answer is obvious: “What can we do. The dollar rate increased the prices…”
The foreign credits that the private sector provided from abroad were a total $273 billion by July, $214 billion of which is long-term liability and $59 billion short-term liability. And don’t forget the net foreign exchange deficit of the real economy, which is exempted from finance. Considering the real economy’s $109 billion of foreign exchange assets by July, it has a liability of $320 billion. In other words, our net foreign exchange position is -$211 billion.
We all know that any negative improvement will eventually push the interest rates but we don’t pay much attention to Treasury yields. Interests in indicator papers rose by a respectable rate on the first day of the visa crisis but despite the relative recovery in foreign exchange and stock markets, Treasury rates continued to rise.
The Treasury paid $79.2 billion domestic debt in the first nine months, $45.8 billion of which is principal and $33.4 billion interest. The Treasury is indebted by $100.3 billion in the first nine months. So think about borrowing TL 100 billion at an interest rate of 10% and 11%. And think about the difference.