Erdogan's Growing Economic Woes
Some would call this a bubble:
As we reported Aug. 3, Turkey's banks are still churning out consumer loans at a 30% annual rate, probably to capitalize the interest on loans bearing an 18% interest rate. The current account deficit is running at about $70 billion a year, which means that Turkey's banks will have to double their net external debt position to finance it. The Bank for International Settlements data (whence the chart was drawn) show no lending to Turkey from the rest of the OECD. We believe the money is coming from the Gulf states, whose largesse is not infinite.
Erdogan's authority stems first of all from his reputation as an economic wizard, a story which the world continues to buy. Why anyone would buy Turkish banks under the circumstances is a mystery to this former banker, but bubbles, as they say, last until they feel like fundamentals.
An imploding domestic credit bubble, constraints on foreign borrowing, soaring food prices and declining exports look like a toxic combination for Erdogan.
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