The Currency-Code of Turkish Lira is TRY. And its critics are trying their best to thrust their will to hit it below the belt. But of no avail, it appears. The motive behind such a try on TRY is simply to force the present political and economic administrators of Turkey accept the dictates of the Trump administration. The present mood of Erdogan administration to tread its independent path is not acceptable to the US. The US logic is that as a NATO member it should function as an orbit state. Turkey considers this position as an attack on its independence.
And, it is all going beyond the war of nerves between the two. It is a trade-war as a prelude of trading a war. On the face of it Turkey is facing the heat. The exchange value of TRY slumped. At one stage it appeared that it will crash. It has now become stable and its downward movement has been arrested. Although it may not regain its previous value in the short run but it appears to reach a respectable level in near future. Following depiction of TRY vis-a-vis USD explains the position.
1 USD equals to:
6.09 TRY on 23.08.2018
6.95 TRY on 13.08.2018
4.88 TRY on 24.07.2018
3.49 TRY on 24.08.2017
1.99 TRY on 24.08.2013
[https://www.google.co.in/search?q=usd+vs+try&rlz=1C1CHBD_enIN762IN762&oq=USD+vs+TRY&aqs=chrome.0.0l6.15123j1j7&sourceid=chrome&ie=UTF-8]
It is obvious that TRY has been losing ground as against USD. The palpability of TRY was noted by the world in mid-August, 2018 when the rate was worst for lira (6.95 on 13.08.208, as noted above). There was a general feeling in the Western media that Turkey would succumb. On the contrary, the nation expressed defiance. Erdogan, in a no-nuisance stance, announced that the nation is ready to face the situation. Movements of exchange rate, thereafter, indicate that the firm stand has paid dividend and the rate improved (6.09 on 23.08.2018, as above).
The economic indices of Turkey are not healthy. Its inflation rate is above 15% and its foreign debt is around 50% of its GDP. There is a need to understand these phenomena.The international business and financial tycoons and the Western media are suggesting specific measures for easing out the situation. But, Turkey is not paying heed to those and is bent upon its own alternate route, which is in total disagreement to the proposed remedies. It has attracted sharp reactions in the Western press and the epithets like dictator, fundamentalist and person with unstable mind are being used for Erdogan. The remedies suggested by the West are to increase rate of interest of its banks and approach International Monetary Fund and increase rate of bank interest.
FOREIGN DEBT
Turkey is not willing to reach out to IMF as it had already paid off their loan in 2013. Fresh loan therefrom is beyond consideration as paying off the IMF loan in the past is considered to be an achievement of Modern Turkey, being one of the few countries in the world which, instead of being caught in the loan web, has come out of the IMF clutch scot-free.
It is true that the IMF loan that Turkey cleared in 2013 was a small segment of its total loan burden. However, it may be appreciated that about 70% of the foreign debts are in the private sectors and are trade/business related. Further, the share of foreign debt as against the GDP of the country is much less than that of the most developed countries, including the USA and Japan.
INFLATION
Inflation is related to supply of money against available goods and services in any economy. The ratio can be controlled either by decreasing supply of money or by increasing production of goods and services. The Western media is suggesting the first remedy while Turkey itself is bent upon the second remedy. Erdogan has called high interest rate as an evil. Increasing interest rate is an emergency method that may give immediate result like allopathic medicines. It has its own long-term repercussions, like side effects. Increasing production is a long-drawn process, which has no side-effect, like the cure of chronic cases in homeopathic treatments. Once it is resolved, it shall be for good. In this backdrop, one may appreciate the following address of Erdogan to his nation as available in a video-clip on WhatsApp.
“You’d be committing a serious mistake if you say ‘let’s freeze our production’… We’re going to export a lot more. There’s no sense in shutting warehouses… Export, Export, Export… Manufacture, Manufacture, Manufacture… We will create more jobs…We will spare no efforts… We will work even harder… We will sell the world domestically-manufactured (products) that are of higher quality….”
The speech may appear to be hyperbolic if we do not keep in mind the following factors:
- That the Turkish are an enterprising lot;
- That Turkey is a serious competitor in European and African markets for items of mass consumption and over the counter products (OTPs); and
- That Turkey is a serious bidder for construction projects in the international market.
We may sum up that Turkey means business and its success at this stage will give a clear message that the world will be a better place if economic developments are made based on equity capital, sans debt capital and real economy based on goods and services get a boost at the cost of financial economy. The message is both clear and loud.