" This week, we focus on Turkey [...] "
<div class="access"><hr /><p class="texte"><strong>This week, we focus on Turkey. Joining us to discuss this in more details is François Faure, economist at BNP Paribas. <br/><br/>Turkey experienced a marked depreciation of the Turkish lira, a fall in the Istanbul Stock exchange and a rise in domestic interest rates ? Where are we at the moment ?</strong><br/><br/>Among emerging countries, Turkey suffered the most from the May-June financial turmoil. Between the 8th of May and the 23rd of June, the Turkish lira depreciated by 23% against the US dollar, the Istanbul stock exchange fell by about the same amount in local currency and yields of the most actively traded T-bill soared from 13% to 22%. Since then, tensions have abated owing to the Central bank direct intervention on the fx market and the rise of its official rate from 13.25% to 17.25%. The Turkish lira has then recovered by about 11%. But domestic interest rates decreased only slightly to 19.5%, reflecting markets worries.<br/><br/><br/><br/><strong>Why was Turkey more affected than other emerging countries? </strong><br/><br/>Because of several factors, Turkey is very vulnerable to a reversal in market sentiment. First, external accounts are very fragile and in the past few years, the current account deficit was financed mainly by volatile portfolio inflows. Moreover, inflationary pressures have appeared again recently and the negotiation process with the EU has been more difficult than expected. Finally, the geopolitical situation is very sensitive because of Turkey's geographical proximity with Irak.<br/><br/><br/><strong>What will be the consequences, in the short and medium terms?</strong><br/><br/>In the short term, if interest and exchange rates stabilize at their current level, the Turkish economy should absorb this shock without a recession or a marked inflationary slippage, contrary to what happened after the financial crisis in 2000-2001. But growth will probably slow significantly in the second half of the year and average 3-4% this year, and inflation is expected to accelerate during the summer and reach 13% to 15% at end-year. <br/>But the depreciation of the Turkish lira should gradually reduce the negative contribution of external trade, in a rather favourable global environment. Moreover, wage-price indexation mechanism has less weight than in the past. <br/><br/>However, the country will go through a period of financial vulnerability during the next 2 or 3 quarters. During this period, the relations between the EU and the IMF will be closely monitored by the markets.<br/><br/><br/>the medium term, the Turkish economy should renew with its disinflationary growth path it followed between 2002 and 2005 if fiscal and monetary policies remain conservative. For the government, next general elections in 2007 and the financial support of the IMF make stabilisation in inflation necessary and thus imply the maintain of the restrictive fiscal policy. The Central bank will have to regain credibility it probably lost in recent weeks.</p></div>
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