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Close friend just asked that I further explain the linkage between #Turkey ‘s Economic polices and the exchange rate. Why is the Lira falling?

The reason is that the 16% inflation rate is too high and requires higher interest rates to compensate savers/investors ==>more
2-Note that Lira’s fall has come after #Turkey achieved credit fueled 7.4% economic growth (one of fastest amongst G20). Higher growth brought more imports (all energy imported) and added to the persistently large trade/current account deficits. Such Deficits have to be funded
3-Funding need of #Turkey to pay for this trade/current account deficit is estimated at $230 Billion per year. This is what happens when you persistently import more than you expert. Foreigners suffering from low rates in G3 & in search of higher returns funded this deficit
4-While many emerging countries run trade & current account deficits (saving-investment imbalance), #Turkey is special in that this imbalance is large in its private sector. Sudden reversal in foreign appetite to invest in #Turkey will mean private sector will have to retrench
5-Turkish Debt: $251 of Govt debt (28% of GDP). $524 of Corporate debt (59% of GDP). $121 billion of household debt (14% of GDP). $207 billion in financial sector debt (used to lend to private sector). Corporate foreign exchange debt is $297 Billion which is 57% of corporate debt
6-The negative loop #Turkey finds itself in is : 1-Needs external financing of $230 billion annually to fund current and trade account deficit. 2-Large corporate debt burden (57% of it is in foreign currency). 3- High 16% inflation & rising. 4-Loss of credibility in central bank
7-Concern over banking sector health will create pressure on ability of banks to continue to borrow externally. As risk premium rises, investors will demand higher rates. This will cut new borrowing and growth will slow making it difficult to repay loans hurting banks further
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