Malaysia and Asia must support Turkey: The dire global implications
Turkey’s debt ratio to Gross Domestic Product is almost half currently, of which close to 35 per cent is denominated in US dollars, with some 27 per cent to mature (to be paid back) in less than a year. The US dollar debt of Turkey, from the public and private sector, stands at about USD 200 billion.
The numbers do not look good in the Turkish private sector too. Nearly 67 per cent of their debts are in US dollars, and about to reach maturity by the end of December 2018 if not within the year. Despite a GDP growth of 7.5 per cent, inflation is at 15 per cent in Turkey, reducing the actual value of its growth, especially when Turkish economy is primarily driven by tourists, who do enjoy the low currency.
The Turkish public sector has debts denominated in US dollars too, of which more than half, again, fall under the same category of the former.
If seen from this optic, the Financial Times reported a few days ago, Turkey’s Lira can get “worse before it gets better.”
The Guardian and the News and Sunday Time appear to concur, with the latter—–further wondering if Turkey might pull out of the North Atlantic Treaty Organization (NATO), which is comprised of twelve countries, including the US, in a constant stand off against Russia.
NATO needs Turkey. It is the second largest force in the collective defense organization. Thus, all talks of Turkey pulling out of NATO are unrealistic for now precisely because there are no provisions in NATO to suspend or expel any of its twelve members.
European Union (EU) does not want Turkey to fall too, as the collapse of Turkey in any shape or form can lead to a tidal wave of refugees from Middle East and North Africa.
EU has an agreement to support Turkey to the tune of six billion annually to prevent the migration crisis either in the sea or on the land and shores of EU.
Therefore, any attempt to understand the sharp fall of Lira, the Turkish national currency, should be seen from a comprehensive outlook.
There are countries that do not want Turkey to fall. Invariably, Turkish Lira has climbed back from 7 Lira to the dollar to 5.9 Lira to the dollar as of August 15. But more can yet be done to stave off any economic crisis of Turkey.
The rest of the world must stand in solidarity with Turkey—–even when President Donald Trump appears to be sneering at Turkey for not releasing Pastor Brunson, an Evangelical preacher, who has stayed in Turkey for over 23 years, and was suspected to have been involved in supporting the Gullenist coup and the Kurdish terrorist element the PKK.
Brunson is now under house arrest, which is a big change from being placed behind bars. But Trump, not one to understand the cues of a sophisticated power like Turkey, remains adamant in demanding the release of Brunson back in the United States.
To make matters worse, Trump even averred in a Tweet on August 12 that by slapping more taxes on the steel and aluminium exports of Turkey to Europe, some to the tune of 25 per cent and 50 per cent respectively, Trump boldly took credit for crashing the Lira himself, when the nosediving of the Lira is far more complex than what Trump had single-handledly claimed. Trump’s irresponsible statements have made matters worse.
To begin with, the global financial crisis in 2007-2008 prompted the US and the West to ease its financial borrowings significantly, especially during the time of former President Barack Obama.
Turkey, not unlike many other countries, took the risk of borrowing in US dollars, by completely throwing caution to the wind that US economy may indeed strengthen, at which point, US interest rates would have to be gradually raised every other quarter, too, which is now looking more and more likely.
Since US economy is now growing at a strong 4.1 per cent annually, the Federal Reserve Bank in US is increasingly more positive but worried about inflation too. The Federal Reserve Bank may raise the interest rate further by the end of the year to tamp down the inflation in US to keep the US dollar strong.
Since US economy is getting stronger, more and more investors are trying to repatriate their my money abroad to be reinvested in an increasingly dynamic US economy, with the assumption that the US- China economy will not worsen too.
Against this background Turkish Lita and six other currencies, including the Rand in South Africa, the Rial in Iran, the Rupiah in Indonesia, the Rupee in India, the peso in Chile and Argentina, are facing the possibilities of weakening too.
Another country with more than USD 270 billion worth of debt is Mexico, although Mexican peso has not been rocked at all. At least not yet anyway. But the chances of Mexico peso crashing are as high as Turkey since most of its debts are denominated in US dollars too.
Malaysia and China have also faced the winds of financial problems when it comes to their debts. But in the case of China, its foreign reserves are more than USD 3.2 trillion, which are more than enough to ward off any financial attacks on the Chinese Yuan; even if its mountain of debts owed to badly runned state owned companies were to go south.
Malaysia has a foreign reserves that, so far, can last up to 7.7 months. But Malaysia’s national debt of USD 250 billion—–while high—-is 92 per cent denominated in Malaysian ringgit. If Malaysia, China and Japan reached an understanding to prevent the international financial system from a melt down, all sides can win.
Thus, Malaysia and the rest of the world, should not wish for a collapse of the Turkish Lira just so that they can enjoy a cheaper holiday trips to Istanbul. If Turkey falls—–smotion
Nameu mom in hh. Me by my house may bt hasn’t—–many emerging economies will be struck down, including Indonesia. Message mom mention
If Indonesia is down, how can Malaysia or the rest of ASEAN be up ? Indeed, if Malaysia and Indonesia are both affected by financial turbulence in Turkey and some of the six or seven countries mentioned above too, how can Southeast Asia even be stable ? Therefore, the key is to stand in solidarity with Turkey. Qatar has done sdo by agreeing to invest USD 15 billion in Turkey, which is a strong shot in the arm of Turkey. Asia should stand up and help Turkey.