The same old question: How many dollars you got?

From Turkey to Mexico, people of developing nations denominate their wealth, debt and assets in dollar. I can’t say they’re wrong in doing that because this situation has a long history.

In Tarantino’s “Jackie Brown”, the protagonist had to go through a series of adventurous events for an amount of money that ambitious people of neither Mexico nor Turkey would not move a muscle to run after it. The truth is the denomination of wealth in developing countries is at least USD 1 billion, while in the United States people can raise hell for far lower amounts of money.

Maybe the reason why the Americans take a different approach than a Mexican, a Turk or a Malaysian when it comes to money is that interest rates remain at very low levels in the US and the US has the most powerful currency on the earth. “Why do people want more no matter how insanely wealthy they are, especially in countries like Turkey?” I get this question a lot but the argument mentioned above doesn’t help me answer it properly.

To me, this type of behaviour has got nothing to do with interest rates. The answer to this question lies behind whether or not people possess a set of good morals. It has been established long ago that the money alone can’t buy respect. Also, title and reputation are two instruments to buy temporary prestige. Despite this fact, a large majority of people in developing countries are trying to get respect and reputation using the size of their wealth. And the size is measured only by dollar.

Knowing that our lack of confidence in our National Currency is something like the “chicken-egg” relationship, we can’t ever manage to get out of this vicious circle because, as I said before, what we lack is a set of ‘good morals’.

“Dollarization: Realities…”

I must say that the habit of denominating our wealth in dollar only slightly changed since the foundation of Turkish Republic. Although old Turkish movies glorified Turkish lira for a very long time, not long after, this tradition would fade into history. The dominance of dollarization was established not only in real life, but in the films as well.

The “reverse currency substitution” process which took place from 2002 to 2013, on the other hand, played an even more detrimental part, causing a rise in dollar-denominated national assets. The fact that Dollar’s swift depreciation took place simultaneously with rise in TRY-denominated assets has been wrongly interpreted. Everyone thought Turkey was getting wealthier and more prosperous whereas in fact the result has been artificially increased since the denominator was getting smaller. This process of going back to the national currency would soon cause the real market dynamics to deteriorate.

As exchange rates kept falling and foreign currency loan interest rates kept remaining at lower levels compared to Turkish Lira, industrial inputs and a certain part of financial liabilities have started to get denominated in foreign currency. Given the fact that the domestic producers of intermediate and investment goods became much more expensive than their competitors, they started to pull out of the market one by one due to lack of demand. Turkish Manufacturing Industry fell into the trap of contract manufacturing, producing goods under the label or brand of global firms.

Banks and Financial Institutions created a serious consumption lobby because of foreign currency-indexed loans they took from foreign institutions so as to offer to domestic borrowers. Retailers soon became a part of this lobby, which were obviously followed by the representatives of the freshly emerged real estate sector. Floating rate combined with high interest rates caused Turkish Lira to appreciate more and more, thus paving the way for the collapse of national industry that produces intermediate goods and investment s goods.

In the meantime, the fact that those, who increased their wealth thanks to high TRY interest rates, have gladly watched their USD-denominated wealth grow bigger as exchange rates kept falling helped consumption lobby find more and more supporters. Thus, a misleading approach of “exchange rates are falling, which means things are going pretty well” has slowly started to influence the public. Those who ignited discussions about exchange rates were warned harshly by the government, banks and media as well.

At this point, Turkey and its counterparts seem like they have neither power nor will left to determine GDP growth, their citizens’ social and economic level of welfare. In countries like these, business people do not have the support of the government as opposed to their American colleagues, and their access to global capital can only be possible with the help of a powerful foreign partner. Otherwise, they have to do what they always did despite the high cost of funding in their own countries.

Indeed today, hundreds of global enterprises have partners from developing markets, operating in infrastructure, superstructure, motorways, dams, airports, overhead power lines, telecommunication, oil exploration, oil drilling, investments of large amounts of cash such as downstream as well as food, retail, banking and finance, automotive and major appliances, gas stations, even restaurant chains.

Although some actors, who made their wealth back in the times when Turkey had a closed, were upset by this situation at first, they too soon would adapt to the new order and grew their businesses through foreign partnerships. Consequently, national firms had to change their ways of doing business and their organizational structures under the roof of foreign partnerships.

All of these things I mentioned above have revealed the danger of suddenly losing 50-60 year old values when exposed to outer shocks.

In short; although TRY’s appreciation is useful in terms of cost of financing, GDP growth and savings; it also need to be observed in the sense of foreign currency denominated-debts which increase foreign currency inflow, thus posing serious profit problems to exporters, and finally an artificial sense of prosperity for the households brought by TRY’s appreciation.

In conclusion, we are extremely experienced in managing things that don’t go too well. But, let’s admit that we are almost incapable when it comes to managing things that go flawlessly.