What’s up with Erdogan?

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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.

David P. Goldman
David Paul Goldman (born September 27, 1951) is an American economist, music critic, and author, best known for his series of online essays in the Asia Times under the pseudonym Spengler. Goldman sits on the board of Asia Times Holdings.