here we have turkey the turkish economy is something of a roller coaster when times are good
the economy of turkey is booming but when times are bad they are really bad unfortunately the
turkish economy is currently going through a rough patch and this started before the health crisis
of the last 15 months the current economic crisis within turkey started in 2018. the turkish economy
was once known as an investment darling investors are now running away from the country this has
contributed to the turkish lira falling in value significantly and in march 2021 the decision to
sack a central banker caused the lira to fall by 15 in one day this is the roller coaster of the
turkish economy especially when the president has some questionable economic theories something we
will come back to later on in this video if you want to learn about the turkish economy and its
current crisis you have come to the right place in this video we're going to talk through how turkey
got to this position and what the consequences of it are and if you'd like to support the channel
and beat the youtube algorithm please like and comment on this video as is common for
my videos we're going back in time although this time we're not going back to the 1940s instead
we're only going back a couple of decades to the start of this millennium ahead of the 2001 turkish
economic crisis the turkish government was playing with fire when it came to the public finances
the budget deficits within the country were huge the yield on one year treasuries within turkey was
close to 100 to put that into perspective the uk's current one year bond yield is a little over north
point north one percent turkey was essentially relying on payday lenders just to keep afloat
the problem is eventually people lose confidence in your ability to repair and when other emerging
economies are growing in a more sustainable way investors will happily go elsewhere this
move from investors didn't come out of nowhere though in 1996 the international monetary fund
warned that the turkish economy could face a financial crisis a trigger for the crash was the
instability of the turkish government coalitions were formed in 1997 which subsequently failed
there were conflicts between the government and the military the result was that 70 billion worth
of capital was withdrawn from the turkish economy this triggered a credit crunch the turkish economy
declined by six percent in 2001 and it needed help the turkish prime minister at the time said
that this was a serious crisis and interest rates climbed rapidly to try and defend the
lira from the markets to try and deal with the economic crisis turkey agreed a bailout package
with the imf the imf provided turkey with over 11 billion dollars in loans with the standard strings
attached of having to modernize its economy these reforms included privatizing state-owned
industries cutting spending and raising taxes advertisements were put in global newspapers
to try and sell off turkish airlines in 2002 erdogan's political party won a majority meaning
that erdogan himself became the prime minister of turkey more importantly though this created some
political stability that investors were hoping for it also allowed ongoing negotiations with the imf
to get extra finance the turkish economy started to boom and was quickly being talked about as
another example of an economic miracle in the build-up to the global financial crisis investment
growth was typically in the double digits turkey's labor force also had a boost in productivity
this combined with the weakened turkish lira helped to boost exports exports are a key part of
gdp and is very common for emerging economies to rely heavily on this type of growth look at china
it essentially became the world's manufacturing hub the same was true for turkey which started to
manufacture and export a lot of steel cars and textiles not only did economic growth
and wages start to climb the turkish economy was generally building a healthy foundation for itself
public sector borrowing fell from around 12 to almost zero percent and inflation fell from 54 to
just shy of 9 this was helped by the independence given to the central bank of turkey the turkish
economy flourished but a huge weakness remained and it's that weakness which has caused turkey
to find itself in another economic crisis it is not uncommon for countries with a history
of high inflation to have a low savings rate there are two main reasons for this firstly what's the
point in saving money if it's going to be worth a lot less in the future secondly if inflation
is expected to remain high the longer you wait to consume the more those goods or services will cost
turkey has long had a very low savings rate meaning that the turkish economy is highly reliant
on foreign capital unlike many other developing countries which export more than it imports turkey
does the opposite this puts downward pressure on the lira as the demand within the turkish economy
is for goods priced in other currencies such as the dollar or the euro and these deficits and
trade have continued to expand the turkish economy is also reliant on capital inflows from foreign
investors to help cover its debt liabilities but there is a risk that those capital inflows will
collapse just like they did in the early 2000s the political circumstances are putting those
capital inflows at risk erdogan became president of turkey in 2014 and within two years there was
an attempted coup following this erdogan began to freeze or seize the assets of those that
deemed involved in the coup even when there was very little evidence this is the opposite
of what investors want especially when there are many other growth opportunities with less
instability another political issue was the trade war between the usa and the rest of the world
while trump was president he introduced tariffs on steel manufactured outside of america whilst
turkey's exports to the us aren't huge this put more downward pressure on the turkish lira this
issue has been made much worse by what has gone on over the past year turkey is a popular tourist
destination and tourism counts as an export the reason for that is that if i was to go on holiday
to turkey i would convert my pounds into the lira which i then spend in turkey tourism drives up the
value of the currency because it's in demand over the last year tourism has dropped dramatically
because people haven't been able to go on holiday exports from the turkish economy have therefore
fallen putting more downward pressure on the value of the lira and then the final contributing factor
to the economic crisis is erdogan himself it is accepted wisdom that central banks work best at
targeting inflation when they are independent of the government the turkish economy has long had
an inflation problem but the central bank has rarely had independence erdogan went as far as
saying interest rates are the mother and father of all evil part of this is due to the more religious
turn that erdogan has taken as president of turkey but the main reason he comes out with this is that
rising interest rates would slow down economic growth and they'd slow down economic growth in
a sector which has many of his allies erdogan has tried to pump up the construction sector as
much as possible to the point where istanbul has a seriously high number of skyscrapers and there are
millions of unsold homes with interest rates being so low it has allowed construction to boom like
we saw in the western world ahead of the global financial crisis the downside to this of course
is that inflation in turkey is very high central banks are typically there to control inflation
and they do this by raising interest rates erdogan however believes that keeping interest rates low
is what will bring inflation down whether he truly believes this or not he has completely
removed the independence of the central bank and this has put the turkish economy at risk in march
2021 erdogan sacked another central banker and the result of this was the turkish lira dropping by
15 percent in just one day he's done this on multiple occasions whenever the central banker
has talked about raising interest rates all of these factors have led to the value of the lira
falling dramatically and the worst part is many of them could have been solved relatively easily but
the consequences for the turkish economy have been diabolical a lot of turkish borrowing is done in
foreign currencies with the lira weakening so much it makes it much harder to cover these debts this
could trigger another full-on financial meltdown the result of this is that the ratings agencies
such as s p or moody's have downgraded turkish debt to junk status this in turn raises the cost
of borrowing going forward so refinancing becomes harder as well if the government is
serious about resolving the problems within the turkish economy it will have to take some very
tough decisions inflation continues to be very high and this typically hurts the poorest people
turkey is now very much within the debt currency crisis spiral that has harmed so many emerging
economies in the past it's no surprise then that turkish people are looking at putting their lira
into other assets there are two main assets that turkish people are switching into the first is
the us dollar and the second is bitcoin switching into the dollar has frustrated erdogan and he has
called for people to switch back to the turkish lira he has done this by using populist language
such as calling those that do switch back patriots for those that are switching into cryptocurrencies
erdogan is simply trying to regulate the problem aware in april 2021 turkey banned the use of
cryptocurrencies to purchase goods and services turkey has the largest volume of cryptocurrency
transactions in the middle east and turkish money has been pouring into cryptocurrency
since 2018. over to you then what do you think of the turkish economy do you think it can return to
the good old days of being known as an investment darling let me know in the comment section down
below don't forget to like comment and subscribe before you go to help support my channel grow
and beat the youtube algorithm thank you very much for watching and i'll see you in the next video