Lira depreciation 2015

Originally appeared on Bosphorus Consulting in March 2015

Currency markets are in a flurry as the Turkish lira weakens to record lows against the dollar. The most recent plunge followed an investor meeting in New York, at which Prime Minister Ahmet Davutoğlu, Deputy Prime Minister Ali Babacan, and Finance Minister Mehmet Şimşek sought to calm investors. Babacan’s presence in the government has long been a deciding factor in the view of many international stakeholders, and rumors surrounding his exclusion last year caused a panic in the markets. Now, though, it appears, that not even a meeting with Babacan in New York can have the effect of maintaining the lira’s strength (ReutersTurkey’s New York investor meets fail to stem lira rout”, 5 March, 2015).

Investors are concerned about the Turkish economy, and those concerns are not being tempered by much of anything coming out of Ankara. This recent mission in New York, meant to assuage investors’ fears, clearly did not have the desired effect. Although these events may be too little and too late coming, they highlight the importance of engaging effectively with international stakeholders.

It also has emerged that the US State Department was not even told about the Babacan/Davutoğlu/Şimşek visit to New York, suggesting, according to one commentator, that the “Turks appear to be in panic mode” (Business InsiderTurkey’s Wall Street is in ‘panic mode’”, 6 March, 2015). These rushed, panic-like actions suggest a reactive rather than pro-active approach to the problems Turkey is facing.

Rather than trying to explain away one’s weaknesses, a more powerful approach is to acknowledge such weaknesses and explain what is being done to deal with them. A message that first acknowledges the reality of the situation (yes, even weaknesses) will have more impact when it turns to addressing strengths. This is the very same message we consistently hear from international analysts and investors, and it is one that all Turkish business communicators would do well to remember.

The other issue Turkish businesses must bear in mind from all this is how worsening economic conditions may make it harder for them to attract investment. For the past decade, many Turkish businesses have been riding the wave of increasing economic success in the country, without having had to work especially hard to secure investment. This might be set to change. A lot of attention has been paid to currency fluctuations and how this can cause problems but as Jesse Colombo argued last year in Forbes Magazine (“Why the Worst Is Still Ahead for Turkey’s Bubble Economy”, 3 May, 2014), the real danger may be in Turkey’s little-talked-of credit bubble. Colombo points out that although Turkey’s GDP has only increase by a third since 2008, its debt has increased four-fold. He gives a number of reasons for why this is not talked about, including the over-concentration on the possible re-occurrence of a 1997-style currency crisis.

A whopping 90% of this debt is denominated in foreign currencies, and the weakening of the Turkish lira makes it that much harder to service debt obligations. If analysts and policy-makers are indeed ignoring the issue of the credit bubble, this has the potential to make any coming difficulties doubly hard on Turkish businesses seeking to secure investment. Now is the time for Turkish businesses to redouble efforts to communicate pro-actively with the international community.

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