08/20/2018, 19.03
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The crisis of the Turkish lira could sink emerging Asian economies

The trade war with the United States is likely to affect other nations. The drop in the Indian and Indonesian currencies is worrying. The Turkish situation is the result of a series of global factors. Support from Qatar, Russia, China (and the EU) might not be enough.

Istanbul (AsiaNews/Agencies) – Asia’s emerging nations could be dragged down by Turkey’s crisis, which has been characterised by a run on the Turkish lira, the “economic war” between Ankara and Washington , and the war of words between Turkish President Recep Tayyip Erdogan and his US counterpart, Donald Trump.

According to some analysts and experts, the crisis of Turkey’s currency is the result of several global factors that found a point of convergence in the Euro-Asian country.

According to one of the worst-case scenarios, Turkey is like the canary in a coal mine, succumbing early to an asphyxiation caused by US tariffs and sanctions.

Against this background, other emerging economies seem to be on the same path. For example, India’s and Indonesia’s currencies hit their lowest point in recent years.

Recent support for Turkey, including US$ 15 billion from Qatar, does not seem to have reassured markets, not to mention the Turkish population.

Russia agreed to use the lira for settlements in bilateral trade instead of the dollar. State-run Industrial and Commercial Bank of China signed a US$ 3.8 billion financing agreement with Turkey in late July. At the same time, the European Union remains Turkey’s largest trading partner.

What is lacking is the confidence of international markets and foreign investors. Thus, the slide of the lira and the country continues.

The Turkish crisis seems to be the result of financial speculation and easy money, like the American bubble that led to the great crisis of 2006-2008.

For Turkey, problems began with cultural and economic expansion, an attempt to carve out a new geopolitical position, and an imperialist foreign policy that ran up against the lack of domestic energy resources and a credit bubble that ended up encouraging speculation.

For many observers, Turkey’s turmoil is a warning for emerging economies, especially in Asia, which share some of Turkey’s feature, namely a low savings rate, heavy reliance on foreign borrowing and high inflation.

Turkish also banks are highly exposed to foreign loans that Turkish companies find it hard to repay, precisely because of the collapse of the local currency. Erdogan’s attitude of open confrontation and nationalist rhetoric have not helped the lira.

However, if Turkey is an extreme case, its current economic situation is not unique. Since 2016, the price of oil has doubled, from US$ 35 to US$ 70 a barrel. At the same time, the US dollar has become increasingly rare and expensive in local markets. For Ankara, this is a huge problem since it absolutely needs the US currency to cover its foreign debts.

More generally, companies in emerging markets around the world have accumulated more than US trillion in US dollar debt, many of them Asian, this according to the Bank for International Settlements.

Unlike China, which enjoys huge foreign exchange reserves, other countries (Turkey, Indonesia, Malaysia, the Philippines, India) now appear to be much more vulnerable.

Increasingly, they will be forced to take drastic measures – including raising interest rates – but that might not be enough to reverse the trend.

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