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Turkish devaluation to fuel growth
27 August 2014
The devaluation of the lira has not yet produced a major benefit to the economy but the effect appears only to have been delayed by a few months, finds Nicholas Clayton
Across the renewable space, she added, foreign investors
thinking of entering would need to be comfortable with the
risks attached to being a pioneer in the sector.
But beyond the lowered barriers to entry for tenders and
privatisations, the depreciation of the lira over the past year
may also make private sector acquisitions more feasible. In
addition to favourable exchange rates bringing down asking
prices, many Turkish companies may be more amenable to buyout
offers now that they have seen their debt ratios climb after
years of borrowing in foreign currencies.
Most active Turkish companies have some form of foreign
currency denominated debt on the books.
However, it is unclear just how much dollar and
euro-denominated debt is outstanding. Emre Deliveli, an
economics correspondent for Hurriyet Daily News, says that in
2012, Turkish companies had easy access to dollar financing at
4%, while lira debt was often nominally around three times as
expensive at 11% or above. When the lira hit its nadir in
January, those companies were suddenly looking at debt burdens
that were at least 20% higher than previously.
But the Istanbul-based banker says Turkish banks have remained
liquid and domestic financing continues to be relatively easy
to obtain. Therefore, he says he sees no obvious cheap deals in
the market, provided the lira remains stable.
The lira’s stability, however, is difficult to
bank on. "The lira is totally dependent on the global
environment," Deliveli says, noting that if current conditions
persist, "we will not see the same pre-crisis liquidity in
Turkey again for another 10 years".
Throughout the summer, the central bank has made modest cuts to
interest rates, dropping the one-week repo rate from 8.75% to
8.25% on July 17. Meanwhile, inflation hovers just above 9%. In
a statement at the time of the cut, the bank said the adverse
exchange rate issues were "gradually tapering off" and pointed
to rising food prices as the main factor delaying the decline
The bank added that it expected the current account deficit to
continue to improve. But developments in the region could still
pose problems. The worsening conflict in Iraq in particular is
already putting a dent in the recovery of Turkish exports. Iraq
is Turkey’s second-largest export market, worth
$12bn annually, and the Turkish Exporters’
Assembly announced on July 15 that exports to the country had
already declined 30% over the year.
Deliveli says the central bank will continue to make small
stabilising adjustments, but the full end to QE expected in
October will still make a mark