What’s up with Erdogan?
The Turkish lira is trading at an all-time low of 2.47 to the US dollar. A good deal of the devaluation is due to the depreciation of the Euro vs. USD — Turkish lira has been trading in a fairly steady band around EUR 2.80 for the past six months. What matters most, though, is that $67 billion of Turkey’s $132 billion in external corporate short-term debt is in dollars, and $156 billion of its $265 billion in long-term debt is in dollars. Most of that debt was acquired when TRY was at USD 1.8, so the cost of debt service for about $200 billion of external corporate debt has risen by a third. The currency’s weakness hasn’t really affected Turkey’s credit (5-year credit default swaps are trading at LIBOR +187, vs. a peak of LIBOR +260 last March). But the economy has stopped growing, with industrial production flat year on year.