It’s the economy!

It is another election year in the United States, yet the eternal slogan of Bill Clinton’s re-election campaign is in the silent whispers of businessmen and politicians in Turkey. No wonder, the chairman of the Nationalist Movement Party (MHP), Mr. Devlet Bahçeli, unleashed the discussion on the Presidency once again. He sees the storm fast approaching.

A leading industrialist and the founder of menswear clothing line Kiğılı, Mr. Abdullah Kiğılı, spoke to Elif Ergu of Hurriyet newspaper last weekend. He admitted the fact that the shopping mall-driven consumer has plunged drastically in Turkey and said, “The game is over.” As a leader of textile and ready-to-wear industry in Turkey, Mr. Kiğılı has seen so many crises and survived all of them. This time, he felt that there will be more pain ahead. 

A young friend of mine who works at the headquarters of a leading consumer bank complained about the debt restructuring demands that were introduced by the AK Party government as an “economic relief package.” “Everyone is doing it,” she said, meaning cutting your debt into 72 installments while paying a considerable interest rate, just so you don’t have to pay anything today. “So many people have applied for debt restructuring, because they know they will never be able to pay it even if it was 140 months,” she said. 
Notice the similarity? Yes, this is beginning of the subprime lending crisis.

Banks are being forced by President Recep Tayyip Erdoğan to cut their interest rates so that even a minimum-wage earning worker in Istanbul can get into the huge trap of buying a house. Erdoğan feels as long as the construction boom continues, the economy will be “just fine.” Well, not anymore.

The unemployment figure has reached double digits again. The unemployment rate among university-educated youth has risen to 13 percent. Commercial banks that went to international markets for syndication are left with little options. Either you pay a higher rate + Libor or you get nothing. 

Turkey’s fight against FETÖ to have economic consequences 

Lenders are scarce as well. The latest tender that a leading Turkish bank got was from a Japanese and a Qatari bank. European or U.S. banks have little appetite for Turkish markets.

According to Mehmet Şimşek, the deputy PM in charge of the economy, the Turkish Treasury is finalizing a new loan guarantee mechanism which will offer 100 percent bail to exporters and 85 percent bail to SMEs to help credit growth and reduce financing costs for banks. Şimşek seems to recognize the trouble as well. 

Leading European portfolio analysts’ reports underlined the fact that the Turkish banks that have enjoyed unrivaled growth and strength over two decades are going to suffer in the months ahead in terms of unpaid loans, asset quality and balance sheet numbers.

Turkey’s fight against the Fethullahist Terrorist Organization (FETÖ) will have economic consequences as well. Leading commercial banks are flooded with police and court files of people’s frozen accounts and unpaid debts.
Turkey’s economy needs hot currency and the only way to have it is through geopolitical power. Ironically, the moment President Recep Tayyip Erdoğan begins speaking about why Turkey should be involved in the Mosul operation on TV, the US dollar and euro tick upward. 

Markets do not have morals, but they do have a consciousness.