In mid-2013, the US Federal Reserve announced plans to end crisis-management monetary expansion and start hiking rates, in a heads-up to emerging economies that the abundance of cheap money they enjoyed on the global market would soon come to an end. Not everyone heeded the warning.

Paying no mind to the changing climate, Turkey continued to borrow while burying the loans into the domestic market, especially the construction sector. After the new US policy took effect, global funds began to avoid and even exit countries like Turkey, causing local currencies to plunge and pushing up the price of the dollar.

As Turkey balked at adjusting, it accrued problems that made its economy even more fragile. Big corporations with foreign debt but without any foreign exchange hedges found themselves sitting on a powder keg.

Turkey’s transition to an executive presidential system in June did nothing to ease the woes, and the new administration failed to win the confidence of economic actors, domestic and foreign alike. With inflation surging to 16% and poised to hit 20% by the year's end, the lira’s dramatic slump against the dollar continued. Things worsened further in late July as political tensions with Washington boiled over, culminating in unprecedented US sanctions on Ankara. As a result, Turkey’s risk premium, reflected in credit default swaps, shot up to record levels, outstripping even that of Greece by about 200 basis points.