Fed decision and increasing cost of funds

As it’s time of the year for me to give a series of conferences all around Turkey, I have the chance to meet and talk to business people from various sectors.

Yesterday, for instance, we talked about some of the Private Sector bonds offer high interest rates on foreign currency and whether or not the bonds issued by some of Turkey’s most powerful business groups carry “default” risk. “I can’t say anything for sure” This was my answer to the bombardment of insistent questions. I only reminded them of the fact that back in the time certain issuers had failed to pay the holders interest.

By the way, Fed’s decision has revealed that things will not be as easy as it seemed. Interest rates in Turkey slowly start to hit unreasonable levels as the cosy of funding keeps increasing.

“Private Banks won’t go bankrupt but they can cause their borrowers to go bankrupt by pushing them too hard to make them repay their debts”, I answered to another insistent question. Naturally, collecting debts is the number one priority of banks. That’s why I was thrilled to hear Minister Albayrak’s “We can provide support to banks, if need be.” statement to the press, especially when Turkey is currently struggling to find funds.

Business persons constantly ask me whether there are other solutions to problems, apart from macroeconomic ones. I say in response, “First we should mend ties with the countries from which we have been receiving funds forever. And the rest will come…” As far as I can see, business people still believe that things can be fixed using microeconomic solutions. I, on the hand, clearly stated that first the Economy Administration will have to accept the reality and then those who manage the diplomacy will have to do the same.

“Realistic Economy and Diplomacy Management…”

Russia, China and Iran may not be our friends, but they can be our trade partners. Although EU and the US are giving a bad impression to Turkey in terms of “friendship”, I certainly do not think they will remain like this forever. On the other hand, it currently seems impossible that a new and powerful (only at an acceptable scale by Turkey) ally will emerge from the Middle East in the near future. Therefore, Turkey should notice the Russia-China-India reality, accept the fact that Turkish people are worthy of being provided with EU living standards, and be close to the US so as to prevent them from doing anything wrong.

The best piece of advice I can give you is that if you are already fighting your rivals on a specific front, always avoid making new rivals because you can’t survive a two-front war. If US-Turkey relations do not improve soon, Turkey absolutely must establish closer ties with Europe. We may even use UK as a catalyst in solving issues with the US and for establishing a closer relationship with EU.

If each and every one of the things I mentioned above becomes reality, it would greatly help markets ease. The important thing is here is to be able to manage the processes of fund procurement and cost of funds without causing panic in the business world. It will take a lot of effort and capability to do that, especially after the most recent Fed decision. Accordingly, at this stage, I certainly wouldn’t suggest you take economy and diplomacy apart from each other.