We were hit by an earthquake in the middle of the night last week. Earthquake has not been for a long time among the risks that we are currently facing or have recently faced such as the COVID-19 pandemic, Russo-Ukrainian War, and economic recession. In fact, the risk of an earthquake has always been there, but we had all forgotten about it.
I am one of those who felt the earthquake shaking. I thought a heavy truck was approaching the front door of my flat. But I quickly realized that this was a violent shaking of the ground, which made me immediately thought of the 1999 İzmit earthquake. Unfortunately, the next big earthquake will cause much greater destruction than the one that happened two decades ago because Istanbul and its surroundings are much more populated today and when an earthquake hits, it would unavoidably bring about substantial economic and physical damage than it did in 1999.
I could say, in the light of my past experiences, that the initial job loss would reach up to 30% in the aftermath of a major earthquake, then slowly decreasing to 10-15% in a ten-day period, not to mention an at least 2 percent decline in economic growth rate. In the event of a destructive natural disaster, the overall loss would be at least 5%, perhaps 10%, of our total GDP. I can’t even imagine the number of invaluable lives that we would lose due to such sweeping catastrophe.
“We are going through a time of financial distress.”
It is obvious that such a big disaster would also give rise to loan and credit problems. As it was experienced before, we might expect first the public banks to offer financial relief plans, including deferment of monthly loan repayments and forbearance, to borrowers affected by the earthquake. In terms of public finance, the Government would surely consider cancellation or deferral of tax liabilities and payment of social security premiums.
If exports are disrupted in terms of both industrial activity and logistics, Turkey will have a little to worry about the current account deficit, because it will experience import problems as well. However, since 90% of our imports consists of inputs required for production, the functioning companies will inevitably be affected by business interruption that is not directly caused by the earthquake itself.
I should also mention the insurance damage. Although other insurers assume some portion of another insurance company’s risk portfolio to balance the insurance market, there would definitely be problems with the rest, especially with increasing valuations.
The fact that Turkey will probably be hit by such major catastrophe in a time of struggling public finance and insufficient foreign currency reserves, the country may experience a sharp foreign exchange attack and then hyperinflation.
Frankly, I don’t have any clue about the precautions for the big earthquake which might come any time now. The only precaution we have is the optimism assuming that buildings built after the 1999 earthquake might be more statically resilient.