![]() The series of events that could cause collapse is outlined below: Of this figure, only $87.9 billion is held in cash. The nation’s total foreign currency reserves amount to $114.5 billion. The total external debt of Turkey (loans owed in foreign currencies) was $466.7 billion at the end of Q1 2018. Many Turkish banks also owe money to overseas lenders. If foreign banks that lent to businesses in Turkey panic and pull their loans, they will have difficulty getting their money back. Large construction projects take years to complete and the changing financial landscape while a skyscraper is still under construction can ruin the developer and its backers. However, the falling Lira has put pressure on the industry, which analysts believe could destroy the entire Turkish economy. The construction industry was able to source financing while the Turkish Lira was stable, or rising. Over-dependence on foreign currency loans in the private sector.An economy reliant on one sector (construction) for growth.The country’s ailments are all signs of a currency crisis and not, primarily a debt crisis. The 2018 financial crisis in Turkey is a good example of how factors other than national debt can harm a country’s prospects for investors. Turkey’s Blue Mosque at night by Joly Jumper via Wikimedia ( CC BY 3.0) Why Is Turkey in Trouble? Those who want to buy Turkish government bonds could avoid the problem of the falling Lira by buying bonds that are denominated in other currencies. Not all of Turkey’s national debt is valued in the country’s currency, the Turkish Lira (TRY). The key problem that Turkey faces is the sliding value of its currency and the government’s low foreign currency reserves. The world’s investor community is worried about the quality of Turkish bonds as a safe place to store money. That remit includes the issuing of bonds and the management of the national debt. The government’s Ministry of Treasury and Finance is tasked with managing the country’s economy and a division of the Ministry, called the General Directorate of Public Finance has the responsibility of raising funds for the government. The bonds that the government issues all bear the name “Republic of Turkey.”Īs a result, there is not one specific institution that is legally obliged to repay those bonds, but all of the combined branches and agencies of the government are mutually responsible for the debt. All of Turkey’s national debt is guaranteed by the country’s government.
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