Family silver next in line in Turkey’s debt crunch
The hefty external debt of Turkey’s public and private sectors is increasingly imposing the option to offer asset swaps to creditors, including company shares and valuable real estate.
The fresh currency turbulence in Turkey saw the price of the US dollar rise about 11% in two weeks earlier this month. But rather than hiking interest rates against the sharp fall of the Turkish lira, the central bank decided Aug. 20 to continue curbing the liquidity it provides to banks. In other words, instead of directly raising rates, the central bank has passed the buck to banks, forcing them to sell foreign currency and increase yields on deposits to secure the liquidity they need. Inevitably, banks have hiked rates on loans as well, as a result of which the credit-driven economic warm-up since June is giving way to a cooling period. Yet another problem exacerbated by rising foreign exchange prices needs to be dealt with, namely the rollover of a bulky external debt.
According to central bank data, the external debt set to mature over 12 months amounts to $171.4 billion as of June. The sum represents nearly 40% of Turkey’s foreign debt stock, which totals about $430 billion and amounts to more than 60% of the gross domestic product, which is expected to fall to some $700 billion this year.
How will the Turkish economy cope with such a hefty external debt amid an outflow of vital foreign capital that has been going on for two years?
A way out that is increasingly imposing itself is to offer asset swaps to creditors, including company shares and valuable real estate, especially in Istanbul.
