Economics
Financial and Economic Recession in Turkey Case Study

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Explain the causes of the recent Turkish financial and economic crisis that started in 2018. What effect did it have on 1) the Turkish economy and 2) the global economy? What kind of fiscal and monetary policies were implemented by Turkey? What are the challenges that remain for the Turkish economy?

Your well-written paper should meet the following requirements:

Be 4-5 pages in length, which does not include the title page, abstract, or required reference page, which are never a part of the content minimum requirements.

Use APA style guidelines.

Support your submission with course material concepts, principles and theories from the textbook and at least two scholarly, peer-reviewed journal articles.

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Turkish Crisis Rattles Global Markets Amid Escalating Spat With U.S. Lira drops almost 14% as international markets sour on Turkey's capacity to repay foreign-currency debts Gauthier-Villars, David; Sindreu, Jon . Wall Street Journal (Online) ; New York, N.Y. [New York, N.Y]10 Aug 2018: n/a. ProQuest document link FULL TEXT Corrections &Amplifications The euro dropped 0.6% to $1.145, its weakest since July 2017. An earlier version of this article incorrectly stated the euro dropped 0.8% to $1.445. (Aug. 10) The Turkish lira fell sharply to its lowest level ever on worries about Ankara's stability, sending tremors through Europe and emerging markets amid renewed jousting between the country's leader and President Trump. The lira dropped as much as 17% against the dollar, extending a tumble that ranks as one of the steepest in world markets this year. President Recep Tayyip Erdogan defended his unorthodox policies in two speeches Friday, vowing to prevail in what he called an "economic war." Mr. Trump said he would double steel and aluminum tariffs on Turkey , a move that would prevent Turkish exports from becoming cheaper with the lira's fall and exacerbating worries of a prolonged trade spat between the two NATO allies. The U.S. appeared likely to keep up pressure after calling for months for the release of a U.S. pastor detained in Turkey. "Our relations with Turkey are not good at this time!" Mr. Trump wrote on Twitter. By the end of New York's trading day, a dollar bought 6.43 lira, a decline of 41% from the start of the year. The Dow Jones Industrial Average slumped 196 points or 0.8% to 25313, its third straight decline, while the dollar rose to a one-year high. In Europe, Turkey's woes hit shares in Spanish, Italian and French banks with large exposure to the Turkish economy. The lira's rough ride was a far cry from Mr. Erdogan's promise that the near-absolute executive powers he gained upon winning re-election under an amended constitution in June would allow him to fix Turkey's economic challenges. The soured relationship between Messrs. Erdogan and Trump has only exposed the economic vulnerabilities that have built up under his leadership. Despite accelerating inflation, which hit 16% last month, Turkey's central bank has kept its main lending rate steady since the election, fueling investor concern that it lacked the necessary independence from the government to fulfill its mandate. Analysts and investors increasingly fear that Turkish businesses will struggle to pay down a debt load exceeding $300 billion because the bulk of it isn't backed by a steady revenue stream. Turkey's external debt ranks among the largest among developing economies as a share of annual output, and its foreign-reserve pot is among the smallest, data from the World Bank and the International Monetary Fund show. The chairman of Istanbul's Chamber of Industry, Erdal Bahcivan, sounded the alarm Friday, saying the falling lira was threatening businesses as well as Turkey's financial system. "Measures to protect the real economy must be put in place urgently," he said Friday. PDF GENERATED BY SEARCH.PROQUEST.COM Page 1 of 4 Selva Demiralp, an economy professor at Istanbul's Koc University, said Turkey can ill afford to alienate investors because it needs a "foreign inflow of currency to gain time while it puts its act together." Turkish sovereign bonds declined in price, with yields on 10-year debt exceeding 20% on Friday, the highest yield since 2008 and up from roughly 12% at the start of May. Some analysts predicted the country would have no choice but to resort to stringent measures such as capital controls or seeking outside help from the IMF, though such aid would come with strings attached. "I think they're going to need the IMF, and the sooner the better," said Paul McNamara, investment director for emerging-market debt at GAM International Management. A Turkish official said the government had no plan to seek IMF assistance. Investors are monitoring what the Turkish government will do to stem the rout, but plans disclosed Friday by Finance Minister Berat Albayrak--Mr. Erdogan's son-in-law--failed to ease concerns. Opposition leader Muharrem Ince, who finished second in the June presidential election, urged Mr. Erdogan to change course. "Sack all your economy advisers starting with your son-in-law," he said Friday, and "leave the central bank in peace." But delivering a speech from a small town in the Black Sea province--his second televised address of the day--Mr. Erdogan struck a defiant tone. "Despite all the attacks against our country, we will continue to grow in the second quarter and we will end 2018 with record economic growth," he told supporters in Gumushane. "Those who think they can bring us to our knees with economic manipulation don't know this nation." The immediate impact of a weaker Turkish economy on the global economy is expected to be relatively small. Carsten Hesse, economist at German bank Berenberg, said that even a 20% fall in eurozone exports to Turkey would subtract only 0.1 percentage point from the bloc's growth. Some fund managers are concerned that fears about Turkey will trigger outflows from other emerging-market countries and push the dollar even higher, while stock investors are weighing the risk of a Turkish economic rout on the banking systems of nearby countries. European banking shares dropped after it emerged that the European Central Bank was examining the banks' exposure to Turkey. Spain's BBVA SA fell 5.2%, France's BNP Paribas SA dropped 3%, and Italy's UniCredit SpA slid 4.7%. During the eurozone's sovereign-debt crisis between 2010 and 2015, concerns over the financial frailty of Greece hit markets world-wide. A limited depreciation of China's currency in 2015 also sparked stock-market selloffs. Some other emerging-market currencies also weakened, with the South African rand and the Hungarian forint falling about 2.6% and 1.7%, respectively. The Russian ruble fell 1.5% and hit a two-year low. In the U.S., Citigroup Inc. dropped 2.7% and the KBW Nasdaq Bank Index, which tracks large U.S. commercial banks, slid 1.3%. Charlie Robertson, global chief economist at Renaissance Capital, said that the longer-term "contagion effect" would be limited because Turkey has a small presence in the widely tracked MSCI Emerging Markets index, so investors exiting Turkey won't be forced to sell assets in other developing nations. Money managers also said Friday's moves were accentuated by thin trading. The differences between quoted prices to buy and sell lira was "wide enough to park a bus," said Mr. McNamara, meaning that a $10 million sale was enough to move the currency a full percentage point. Yeliz Candemir contributed to this article. Write to David Gauthier-Villars at David.Gauthier-Villars@wsj.com and Jon Sindreu at jon.sindreu@wsj.com Related * Global Stocks Drop Amid Concerns About Turkey * Investors Dump Banks Exposed to Turkey * Recent Strains in U.S.-Turkey Relations * Turkey on the Economic Brink, Explained in a Dozen Charts PDF GENERATED BY SEARCH.PROQUEST.COM Page 2 of 4 * Analysis: This Year's Big Disrupter: The Dollar * Turkish Turmoil Is Tied to Pastor's Fate Credit: By David Gauthier-Villars and Jon Sindreu DETAILS Subject: Currency; Emerging markets; International finance; American dollar Location: Hong Kong Turkey United States--US Ankara Turkey People: Erdogan, Recep Tayyip Company / organization: Name: European Central Bank; NAICS: 521110; Name: GAM International; NAICS: 525910; Name: International Monetary Fund--IMF; NAICS: 522298; Name: Financial Times; NAICS: 511110 Publication title: Wall Street Journal (Online); New York, N.Y. Pages: n/a Publication year: 2018 Publication date: Aug 10, 2018 Section: Markets Publisher: Dow Jones &Company Inc Place of publication: New York, N.Y. Country of publication: United States, New York, N.Y. Publication subject: Business And Economics Source type: Newspapers Language of publication: English Document type: Opinions, Commentary ProQuest document ID: 2086215085 Document URL: https://search.proquest.com/docview/2086215085?accountid=142908 Copyright: (c) 2018 Dow Jones &Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission. Last updated: 2018-12-13 Database: ProQuest Central PDF GENERATED BY SEARCH.PROQUEST.COM Page 3 of 4 Database copyright  2020 ProQuest LLC. All rights reserved. Terms and Conditions Contact ProQuest PDF GENERATED BY SEARCH.PROQUEST.COM Page 4 of 4 ...
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Final Answer

Attached.

Running head: TURKISH FINANCIAL AND ECONOMIC CRISIS

Turkish Financial and Economic Crisis
Student’s Name
Institutional Affiliation

1

TURKISH FINANCIAL AND ECONOMIC CRISIS

2

Turkish Financial and Economic Crisis
Introduction
Countries experience financial and economic crises due to unprecedented occurrences,
such as natural calamities and disease pandemics, poor policymaking processes, and lack of
government interference in a free market economy. In this case, Turkey faced a financial crisis
that begun in 2018, which involved the Turkish currency and debt crisis where the country’s
currency, Turkish lira (TRY), plunged in value, rising borrowing costs, high inflation, and rising
loan defaults (Akcay, 2018). For some time since 2018, Turkey’s currency remains upbeat and
battered while foreign debts remain vast, including high rates of inflation and joblessness, which
indicate minimal economic growth that accompanies political uncertainties. As at the end of
December 2017, Turkey’s foreign-currency denominated debt stood at $453.2 billion, which
represented about 53% of its GDP and created a situation that preceded an economic crisis due to
lack of appropriate policies (Goodman, 2019). Although Turkey represents one of the richest
nations in the world, the 2018 financial crisis proved that countries should consider the
appropriate monetary and fiscal policies in order to guide the local economy and avoid a
potential economic crisis.
The Impact of the Crisis on Turkish Economy
The current Turkish economic situation, which almost went into recession “arrived” at
this state due to factors, such as economic, political, non-economic, and non-political. During the
period, Turkish president dismissed Turkey’s severe economic challenges and blamed the
nation’s currency crisis of August 2018 on attacks of non-economic basis (Task...

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