Page 38 - BNE_magazine_05_2019

38 I Southeast Europe bne May 2019
When lenders’ and corporates’ obliga- tions to their branches and affiliates abroad are excluded, Turkey was obliged to repay $156bn in foreign debts across the next 12 months as of end-February, up from $155.4bn as of end-January.
On April 15, central bank data on the private sector’s outstanding foreign loans showed that the sector was obliged to repay $62bn in external loans across the 12 months following end-February. This figure stood at $70.5bn at end-July 2018.
The Turkish private sector is on the hook to repay (as there is no news of defaults) $7bn in foreign loans this month and
it is due to pay another $8.5bn in May. Recall that in May last year, when the lira was traded against the refrain
of “Sell in May, Go on holiday!”, the currency started to break through its historical record lows against the USD.
Lost its window
Window of opportunity for the Turkish government to borrow abroad has closed after it shot itself in the foot when it stunned financiers by starving the London swap market of lira in
a bid to frustrate short sellers and protect the currency in election week. Last September, finance minister
Berat Albayrak enjoyed rather fruitful meetings with hot money investors
in London, but – partly given the
swap market shenanigans – his latest encounter with such investors last week, when he arrived in Washington for the IMF and World Bank spring meetings, by many accounts proved one of the most sobering experiences a finance minister has ever endured. Sure, he returned back home with a photo of himself talking Turkey in the Oval Office, but the bad and scathing language used by investors in describing his on-stage presentation of a so-called economic reform package was enough to make even some of the tougher-talking traders blush.
Financiers funding the way ahead for the Erdogan administration were sold on the idea of officials taking a serious and focused approach to fixing Turkey’s economic ills once the country had moved beyond the local polls and into
a four-year period in which there would
www.bne.eu
be no scheduled elections to upset calculations (such remedial work is long overdue, the country’s economic difficul- ties have essentially been growing since 2011, though they were much disguised until half-way through last year). But the elections served up a humiliation
for Erdogan and his AKP party, with the opposition scoring two heavily symbolic victories, those of Ankara and Istanbul.
The “will he, won’t he” question as
to whether strongman Erdogan will attempt an Istanbul poll rerun to reas- sert his authority has now been bugging the markets for nearly three weeks, and, given Erdogan’s manoeuvres since
The descent in equity prices and the currency depreciation unfortunately
do not explain the dramatic decline in foreigners’ stock of Turkish securities as the more eye-popping decline in bonds is mainly due to the Treasury’s efforts in suppressing bond rates in evidence since November. They have spooked foreign investors. The government has in the meantime kept the ship upright by cranking up external borrowing, but with the channels for that now seem- ingly closed there is a big question mark as to what it plans next. Budget metrics and the borrowing requirement have also deteriorated further compared to last year as transfers from the central
“Window of opportunity for the Turkish government to borrow abroad has closed after it shot itself in the foot”
election night, all those Pollyannas who insisted on seeing the political situation in Turkey as normal may finally take a long hard look at themselves. What’s more, it no longer seems viable that the governing coalition can avoid holding snap elections all the way up to 2023, given the perilous situation with the economy and the new currents running through domestic politics.
Ominous rumbles
Since last week, indeed, there have
been ominous rumbles from the IIF that Turkey could already be in the midst of another ‘sudden stop’ in its balance of payments. The first occurred last August after the lira tanked. Another occurrence could help rein back the current account deficit – which has lately started pulling away again – but it would be bad news for debt roll-overs.
Central bank data suggest that the market value of foreign investors’ overall Turkish equity stock on the Borsa Istanbul fell to $30.5bn as of April 5 from $49.4bn as of end-March 2018, while the picture is even more dramatic in government bonds – the market value of foreigners’ domestic government bonds stock fell to $14.5bn from $29.3bn and repo stock severely declined to only $307mn from $2.07bn.
bank have already been spent and there are growing payment obligations to idle mega infrastructure projects.
The Erdogan administration can wave its Oval Office photo at external finan- ciers as much as it wants, and it may well find some thick-skinned investors who’ll deal, but only at the cost of higher and higher interest payments that would anyway only delay the collapse, just as has been the case since last September. And more significantly when it comes to the question we posed at the start of this article, those thick-skinned investors would demand a stark currency devalu- ation that would pave the way for a retreat in the local currency at the point they entered into the market.
So what about the IMF? The IMF option brings some obvious questions. When would the deal be ready? Would the US give its approval for IMF support (there are numerous unresolved disagreements between Ankara and Washington that could at any moment lead to a Twitter bombardment during one of Donald Trump’s critical moments of reflection during “Executive Time” in his private quarters)? And would Erdogan, once oh-so-proud of delivering what he said would be Turkey’s final goodbye to the