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Turkey

Turkey, No Limit To How Far The Contagion Can Spread

The 'sudden stop' scenario has hit the Turkish economy, which threatens other countries around the world — and not just economically.

Turkish Lira's decline bodes-ill for more than one country
Turkish Lira's decline bodes-ill for more than one country
Jean-Marc Vittori

PARIS It may just be a matter of hours. If Turkey fails to stop the rapid decline of its currency, it may run out of air. Its economy would then be seriously damaged. Its population of 83 million would be condemned to suffer a painful drop in income.

Current balance deficit

The "sudden stop" is a well-known phenomenon. A flourishing country attracts foreign capital. With this new money, companies invest willingly. Often, consumers also borrow to spend more. The current account, which measures the gap between a country's inflows and outflows of money, increasingly spirals into deficit.

Until one day when an often minor event causes investors to review their choices. They suddenly stop bringing in funds, or even withdraw their assets. The national banks leave the scene. The country has no other choice but to brutally readjust its accounts. It therefore has to spend much less, which sets off a severe recession.

Contagion spreads

If the "sudden stop" is well known, it is because it has happened many times in recent decades. In Mexico in 1994, in Asia in 1997-98, in Greece then in Spain at the beginning of the 2010s. Unfortunately, this scenario seems to be happening again in Turkey. With growth of over 7%, the country attracted capital looking for a nice return on investment. The quarrel between Washington and Ankara over an American evangelical pastor rotting in a Turkish jail has served as a warning signal to market players. The Turkish lira is plummeting. Companies indebted in dollars must pay twice as many liras as a year ago to honor their commitments. This is unsustainable. Investors are starting to look at other financially vulnerable countries, such as Argentina and South Africa. Contagion looms.

There isn't much time left to prevent a destabilization from which everyone would suffer.

Turkish President Recep Tayyip Erdogan calls it a conspiracy. But he actively contributed to the crisis. First, by loosening budgetary control. Then, he put himself in charge of the central bank. Finally, by assuming unprecedented powers in a great democracy. These decisions have naturally worried the country's creditors.

Avoid a worst-case scenario

There isn't much time left to prevent a destabilization from which everyone would suffer: Turkey, where both the population and the governments have much to lose; Europe, which has largely resolved its migration crisis through an agreement with Ankara; the emerging countries threatened by contagion; and even the United States, for whom Turkey is a precious ally. Erdogan may be the only one who still has the means to avoid a worst-case scenario. That fact alone is not necessarily reassuring.

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Geopolitics

How South American Oceans Can Sway The U.S.-China Showdown

As global rivalries and over-fishing impact the seas around South America, countries there must find a common strategy to protect their maritime backyards.

RIMPAC 2022

Juan Gabriel Tokatlian

-Analysis-

BUENOS AIRES — As the U.S.-China rivalry gathers pace, oceans matter more than ever. This is evident just looking at the declarations and initiatives enacted concerning the Indian and Pacific oceans.

Yet there is very little debate in South America on the Sino-American confrontation and its impact on seas around South America, specifically the South-Eastern Pacific (SEP) and South-Western Atlantic (SWA). These have long ceased to be empty spaces — and their importance to the world's superpowers can only grow.

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