THREAD 1/ Turkey has been through a lot: a coup attempt, a referendum that concentrated power in the hands of the president, spillover from the Syrian civil war. But that doesn’t explain why the lira comes under pressure during every major global selloff bloom.bg/2KXaJb8 
2/ Turkey’s currency has been one of the hardest-hit emerging-market currencies, shedding more than 10% of its value against the dollar and the euro in 2018 bloom.bg/2KXaJb8
3/ Investors complain that Turkey’s economy is overheating and its monetary policy remains too loose to contain runway inflation. It’s also burdened by twin deficits and the budget deficit has been exacerbated by a fiscal boost ahead of elections in June bloom.bg/2KXaJb8
4/ Turkey’s current-account deficit – a broader measure of a nation’s imbalance in trade – has ballooned to more than 5% of output, among the largest in the G-20 group of nations. That makes the lira particularly vulnerable to capital outflows bloom.bg/2KXaJb8
5/ Part of the problem is that Turkey lacks energy resources and is a major oil importer, which means the long rally in crude prices has inflated the bill. The low savings rate means that breakneck growth has to be financed with money borrowed from abroad bloom.bg/2KXaJb8
6/ To make sure the money stays, Turkey’s central bank needs interest rates that are high enough to lure investors – something it appears reluctant to do bloom.bg/2KXaJb8
7/ To be fair, the Turkish central bank has managed to raise rates by more than 500 basis points since 2017, to the current level of 13.5%. The problem is that President Erdogan supports lower rates (he has his own ideas on what causes inflation) bloom.bg/2KXaJb8
8/ Investors worry that political pressure means Turkey's central bank will resist a hike until it's forced to do so by the market. In the meantime the lira tumbles, inflation accelerates, and the size of the increase demanded by bond holders only rises bloom.bg/2KXaJb8
9/ Higher rates wouldn't solve all of Turkey’s problems, but they could put the economy on a more sustainable path: The economy would cool, imports would slow and the current-account deficit would narrow bloom.bg/2KXaJb8
10/ On the downside, higher rates would probably leave some borrowers unable to service their debts. To keep unemployment down Turkey would need to transition to a production- and export-led economic growth model. That’s easier said than done bloom.bg/2KXaJb8
11/ The long-term solution would be structural reform in Turkey. That means politically costly (but long-overdue) revamp to increase competitiveness, boost savings. Only then would the lira break free from its reliance on fickle flows of foreign capital bloom.bg/2KXaJb8
