May 18 2018

Turkey may have passed threshold into crisis – economist

Turkey may have passed a critical threshold to enter a financial crisis, according to Korkut Boratav, a left-wing economist and retired university professor.

The point was probably reached in May, when two-year bond yields exceeded 17 percent compared with 13 percent at the end of February, Boratav said, according to business website Patronlar Dunyasi.

Another key metric for a crisis is portfolio movements, Boratav said. Portfolio inflows surged 78 percent in January and February, creating a balloon effect, but a reversal started in March, with outflows of $1.4 billion, he said. It appears that this trend continued in April and May, he said.

At the same time the government is pumping the economy, introducing more incentives to spur domestic demand and at the same time widening the current account deficit further, he said. Turkey needs the portfolio inflows to finance the shortfall, but isn't getting them, he said.

Adding to this critical situation, President Recep Tayyip Erdoğan visited London this week and his statements about interest rates caused more concern among foreign investors, who are responsible for deciding on whether or not Turkish portfolio flows are positive or negative, Boratav said.