Flash-point: Private sector external debt
While politicians knew that the private sector’s external debt would have a negative impact on the country’s economy, they ignored it. There were few exceptions. Let’s not forget that former Deputy Prime Minister Mehmet Simsek saw the future as he strived to limit the foreign exchange borrowing of companies. In other words, when we say that politicians ignored this danger, we talk about the general approach.
Some of the companies that do not hold foreign currency debt could not really comprehend what would happen to them when the exchange rate increased. While citizens knew that an exchange rate increase would lead to inflation, they believed that private sector debt would only be of interest to these companies, and could not foresee that they would suffer serious losses in employment.
The proverb “a good scare is worth more than good advice” was confirmed once again. We may not have learned our lesson in the fullest sense from the increase in the exchange rate. However it has become apparent that the current picture is not sustainable. As a quarter of private sector debt is short-term there are considerable risks. It is obvious that it won’t happen over the short term, but over time we should look to extend the term at all costs.