Turkey Financial Crisis Erupts, Stoking Concerns of Contagion

Turkey's currency, the lira, has hit record lows, creating a headache for the country's president and pushing up prices on everyday items. Turkey entered a full-blown financial meltdown on Friday, sending tremors through global markets, after President Recep Tayyip Erdogan declared his refusal to bow to U.S. political demands and market pressures. The unraveling was swift, highlighting the fragility of Turkey’s economy after years of a growth-at-all-costs policy bias that left its companies saddled with hundreds of billions of dollars in foreign debt. The lira plunged as much as 17 percent on Friday alone, bringing its loss for the year to 42 percent and raising the specter of contagion into Europe and across other emerging markets.

What is the cause of these crises?

A combination of factors, according to experts, has led to fears the country is sliding into an economic crisis. Investors are worried that Turkish companies that borrowed heavily to profit from a construction boom may struggle to repay loans in dollars and Euros, as the weakened lira means there is now more to pay back. Then there are Turkey's worsening relations with the US. Donald Trump's administration hit its justice and interior ministers with sanctions last week, a reaction to the detention of American pastor Andrew Brunson, who has been held for nearly two years over alleged links to political groups. In many nations, including the US and EU states, the central bank is independent of government and no one can tell it what to do with interest rates. This means it can keep control of inflation by raising them when necessary. But in Turkey, Mr Erdogan has made sure he controls the reins. He claimed the exclusive power to appoint the bankers that set interest rates - and to cement his control he has put his son-in-law in charge of economic policy.

Turkey Economic Crisis August 2018 Highlights

  • Trump got mad that Turkey’s economic crisis has made their currency weaker, so now he’s making it even weaker
  • Trump Doubles Down on Turkey, Imposes Tariffs on Turkish Imports
  • Erdogan tells Turks to buy crumbling lira as Trump turns the screws
  • US President Trump set to double aluminum and steel tariffs on Turkish imports as relations between the two  countries come under strain
  • Erdogan calls Putin as Turkish currency tumbles
  • Europe markets close lower on Turkey concerns; banks fall; Novozymes down 3%
  • Gold Gains on Safe-Haven Demand as Trump Doubles Tariffs on Turkey

Adverse effects of economic crisis

  • As Turkey financial crisis deepens, bankers to review impact of shocks

  • Indian rupee drops to all-time low against dollar as Turkish crisis hits emerging markets

  • Asia share markets skidded and the euro hit one-year lows

  • Bursa joins global selloff as Turkey's economic crisis unfolds

  • The three major U.S. indexes closed lower as the Dow erased its gains for the month. The Nasdaq snapped an eight-day winning streak

  • Singapore stocks fall back on double whammy of Turkey crisis, Q2 GDP miss

  • Dubai Bank's Turkey Bet Just Got $1 Billion Cheaper and Riskier