Turkey’s growth statistics are expected to be released today, however I prefer to deliver my commentary on the subject tomorrow. This morning, I would like to focus on private sector’s complaints regarding the increasing exchange rates. I am sure some of you will get upset or offended. I also have a few words to say to the financiers.
I have been to almost every continent of the world but I have never seen any other business environment similar to the one in Turkey that behaves according to the positions of its national currency against dollar or euro. You might say, “Maybe that’s because the exchange rates are always fluctuating”. However, I have been recently thinking that the cause of exchange rate fluctuations is actually based on Turkish business world’s obsession for open positions for the last 15 to 16 years.
I think my thesis is almost approved considering that nearly half of a 240 billion dollar external debt is solely owed by companies that get no foreign currency income. I do not seem to remember that any government or political leader ever said, “No need to be afraid. You can get as many foreign currency loans as you want”. And I do not think that in an era where geopolitics swiftly changes and gets sharper than ever no government or leader in their right mind would say, “Our private sector has gotten into a lot of debt. That’s why we cannot take the necessary diplomatic actions”. No state in the world would declare, “I cannot follow the rules of engagement because of the current state of our private sector” when the country is under the enemy attack.
Maybe the biggest mistake we made was to ignore or underestimate the overborrowing and think that it would never get worse. Just like some economy professors stated in the beginning of the 2000s that Turkey would never go through any problems as long as the current account deficit is financed, no one has showed serious attention to the private sector’s external debt stock.
“About the financiers…”
Some said, “The collateral for at least half of the debt is the business owners’ own money” while foreign currency loans were constantly increasing. With the same perspective, before the unstoppable rise of the exchange rates, there were even some who have tried to provide loans to companies that got into more debt than their total revenue. Despite all my warnings, I even heard some people say, “The assets of the company owners are all pledged”. Is there any business owner in Turkey owning such large assets that can be used as collateral to secure repayment of such huge amounts of loans?
In short, it is our entire fault that the dollar has been appreciating almost by 100% against TRY since the last year and credit interest rates have climbed to 40% which were once standing at 8-10%.
We were not convincing enough while business people were acting too greedy, political leaders were unnecessarily carefree and people in general have been too demanding. On the other hand, Turkey had to gather its strength back as quickly as possible fate the nefarious coup attempt of 15 July. But as we made “reaching the finish line as soon as possible” our priority, we have failed to drive the car carefully.
Now, the bureaucracy is giving hasty reactions such as the recent meaningless amendment to the Decree No. 32. Everyone is fuelled by some strange motivation of “We should do something! Now!” If you ask me, before we take any action, we should better listen to and learn from people who have been through similar problems and successfully overcome them. We have experienced the 1994 and 2001 financial crises. We should learn from the experiences of people who have faced both crises.
In conclusion, those looking for a scapegoat should first question themselves; because, it can now clearly be seen that investment/spending and the related financing decisions in both private and public sector have been made without proper consideration and analysis.
The only way out of this mess is to think calmly and learn from mistakes. I think we will succeed, maybe not today but soon provided that each and every people think reasonably, learn from others’ mistakes and sweep their own doorstep first.