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Turkey might have more problems than currency collapse

Image result for turkish flag

The Turkish Lira is currently down 43.24% YTD against the US dollar, but it’s the external debt Turkey owes thats the real concern.

 

Political instability, attempted coups, tariffs and twitter beef with Donald Trump has forced the Turkish Lira down 53.63% since 2016. With the Lira currently trading at $0.15 USD Turkish buying power has significantly weakened.  

 


Turkey is currently exposed to 16 billion worth of bonds set to mature either later this or 2019. These bonds are primarily issued in USD, and therein lies the problem.

 

On October first 1st of this year, the first significant Turkish bond will mature. Coca-Cola Icecek AS, a turkish beverage bottler and distributor, has an outstanding debt of $500,000,000 USD set to mature in october. Since this bond was issued, september 13th 2013, the Turkish Lira has fallen a staggering 69.17%. Representing an additional cost of 2.3 billion Lira to the corporation.

This is only one of the many loans set to mature for Turkish institutions, government and corporation over the next 14 months. Turkey currently is set to pay out 13.375 billion in USD by December of next year. Since January of this year, that debt has grown by roughly 37 billion Lira, and considering the current uncertainty surrounding the Lira it would be no surprise to anyone if it continued to drop.

The risk

The worst case scenario would be a continued drop in the Lira; if it falls to the point where bond issuers cannot pay out their debt upon maturity, the risk of default becomes imminent. If Turkish organizations default on their debt, europe as a whole could face severe repercussions. Further Lira underperformance would persist, only worsening the debt crisis, and organizations such as the IMF and other allied nations would have to assist in bailing out Turkey. It could be possible that another incident similar to the Greek debt crisis could occur.

However, as of writing the Lira has recovered 6% of its value. Which may indicate the beginning of a recovery for the currency, or at the very least, some form of stability. Turkey’s future for the short term is dependent on the currency’s performance. Whether or not the future is stable will have to wait until October, when the first of turkey’s debt is set to mature.