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Aug 14 2018

True impact of Turkey’s crisis yet to be experienced  - analysis

Turkey is bracing for the largest emerging markets (EM) default of all time with true nature of the scale of its default and the global impacts of that default still to come, wrote Zero Hedge financial blog.

The Turkish lira lost 32 percent value in August alone, following the announcement earlier this month of U.S. sanctions on two Turkish ministers and doubling steel tariffs in response to the detention of a U.S. pastor and a dozen other Americans. The currency has extended losses this year to more than 40 percent amid the crisis, raising fears of a complete financial meltdown.

Turkey is expected to impose capital controls enforcing a near total loss of US$500bn of credit assets held by the global financial system, Zero Hedge said.

‘’One wonders why investors expect President Erdogan, a man who has referred to them as like the loan sharks who enslaved the Ottoman Empire, to choose to repay the foreigner and accept the crushing socio-political cost on the local population of doing so?’’ the site asked, noting that even if Turkish institutions have the ability to pay, Turkey’s strongman will forbid them from doing so.

Highlighting that the move by Turkey to repudiate de facto its debt obligations will reveal the truth about populism, Zero Hedge stressed, that ‘’it is red in tooth and claw in emerging markets because it is there that title to assets and their cash flows have limited constitutional protection.’’

As events in Turkey play out at a time of still incredibly low, developed-world interest rates, the site explained, ‘’it is time to ask again how wise it is to pursue the returns of a normal cycle as the foundations of the global monetary system are shifting under your feet.’’