Currency tumult hits Turkey’s credit-driven revival
Apprehension is rife in Turkey that a loan-driven economic warm-up could devolve into major turmoil in the fall, with Ankara’s dubious management of the coronavirus pandemic feeding the unease.
![1227951320 An employee counts money at a currency exchange office in Ankara, on August 7, 2020. - Turkey's lira on August 7, 2020 set a new record low against the US dollar as investors worried about the government's economic policies and dollar reserves appeared to be running low. (Photo by Adem ALTAN / AFP) (Photo by ADEM ALTAN/AFP via Getty Images)](/sites/default/files/styles/article_hero_medium/public/almpics/2020/08/GettyImages-1227951320.jpg/GettyImages-1227951320.jpg?h=a5ae579a&itok=FrTnTD16)
Pumped with cheap and abundant credit since early June, Turkey’s economy has warmed up after a pandemic-ravaged second quarter in which it is estimated to have shrunk more than 10%. The revival, however, is fraught with risks, as the fresh slump of the Turkish lira demonstrated this week.
The loan-driven uptick in domestic demand has an array of side effects, including on inflation, which was near 12% in July, and the country’s gaping foreign exchange gap, which had already depleted central bank reserves, when the embattled lira took another nosedive Aug. 6, plunging to record lows. The economic warm-up might well prove a false spring and devolve into a stormy season in October.