Tuesday 21 August 2012

Turkey's economy propped up by 'hot' money is on the downswing

The two countries which at present pose the main threats to Israel's security after Iran have a major economic headache to deal with. Egypt's economy has for the last year been teetering on a precipice, kept alive by infusions of cash from Saudi Arabia, Qatar and food aid from the USA. 

Turkey the much vaunted tiger economy of the middle-east is being shown to be a paper tiger if anything, propped up by 'hot' money and a short term credit financed consumer boom. When the bust comes, Turkey is going to find it painful. The below article shows how consumer spending is currently financed by loans equal to half of the yearly income.

Just as Turkish consumers are in debt to banks, those banks borrow short term money to finance consumption rather than the capital investment needed to grow the economy.  

As Turkey overreached itself diplomatically with its so-called zero conflict policy with its neighbours (apart from Israel), a policy that lasted all of a year and is now shattered, Turkey being in conflict with most of its neighbours, Turkey's economy is not going to be able to support its foreign policy goal of extending neo-Ottomanism throughout the region. It will be difficult to promote conflict with Israel when the two major players will have no economies to speak of. This is contrasted with Israel being set to grow its economy with the recent discovery of mas

The good years are past for islamist Turkey and the way is now downwards. The economic hardships that will ensue will hopefully lead to a backlash against the aggressive islamism of Erdogan and a rebalancing of Turkey towards the center. 

The realities of the situation however have still not hit home and people are continuing to maintain a consumerist lifestyle without reigning in spending. This is leading to ever increasing debt, and the possibility of an economic crash similar to that seen in european countries.

It's up to the CHP opposition to end its divisions, and lead the country back to the secular state of Attaturk. 
Whether that is possible now remains to be seen.


The debts of Turkish families to banks is dangerously increasing, a study by the main opposition CHP lawmaker Aygün says. Consumer loans are the main concern

Turkish citizens are trying to pay their debts to banks with new debts, as their spending exceed their income, a study by a main opposition party lawmaker says.
Turkish families are deep in debt as their financial responsibilities have jumped 18 times in the past nine years while their income has only doubled in the given time, according to an opposition lawmaker, who warns about the risks of levy for millions.

The rate of family debt has exceeded 50 percent of spendable income and the ratio of debt to financial assets has hit 45 percent, according to a study revealed by Sinan Aygün, a member of Parliament from the Republican People’s Party (CHP), who was also the head of the Ankara Chamber of Commerce for many years.

“Developments in the last 10 years show that the debts of families are growing like a snowball. A smaller debt rate compared with some European countries should not fool anyone. Turkey is approaching European countries in this field. Citizens are financing their expenditures with debt, and trying to pay debts with new ones as their real income keeps falling,” he said. “More than 2 million people are facing risks of levy because of their debt to banks.”

Figures provided by Aygün mainly compare the current situation with the period before Justice and Development Party (AKP) rule, which began in 2002.

Spending remains stable
The final spending of households remained unchanged in the first quarter of this year when compared to the same period a year earlier, according to official gross domestic product figures and data by the statistics body TÜİK, Aygün said in a statement yesterday. Despite the stagnation in domestic demand, the financial debt of families kept increasing, he said.

Households’ consumer loans increased by 7 percent in the first seven months of the year, Aygün said, referring to figures by the BDDK, the banking regulator. The rate goes up to 15.1 percent for credit card loans and 12.3 percent for arrears to banks, he said.

The amount of consumer loans reached 180.2 billion Turkish Liras as of the end of July 2012, Aygün said. Credit card loans on the same date totaled 63.3 billion liras, as the lingering debts of loans and credit cards stood at 7.5 billion liras. Debts to consumer financing companies amounted to 5 billion liras.

These figures show that the debts of households reached 256 billion liras in July 2012, up from 234.6 billion liras at the end of 2011.

This figure does not include the debts to TOKİ, the state-run property developer, and non-performing loans to asset management companies, which would push the total figure to over 270 billion liras. This figure stood at 251.9 billion liras at the end of 2011.

The Central Bank estimates 2011 total household spendable income at 487.2 billion liras, which puts the financial loans at some 51.7 percent of the total. This rate was 5.5 percent in 2003, Aygün said in the statement.

“Despite the fact that the ratio of the debts of Turkish families to their spendable income and GDP is below [that of] European countries, the large gap between the acceleration of borrowing and the rise in incomes in the last nine years shows that the Turkish people are going deep into debt.”

The interest rates in Turkey have been going down but in this given period the amount of interest Turkish families paid jumped by nearly 5 percent, reaching 23.1 billion liras in 2011. This figure was only 4 billion in 2003, Aygün said.

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