Turkey's Economy Is A House Of Cards - Consumer Debt Crisis Emerges

Turkey's soaring inflation, plunging currency, surging interest rates, and a collapsing stock market, has ended almost two decades of stable economic growth and the "good life" for Turkish consumers that started in 2001. Now, the greatest threat facing Turkey is a structural one: its desperate need for foreign financial resources. 

A stable economic environment combined with easy access to global liquidity provided Turkey with abundant foreign resources. 

The decade of expansionist monetary policies of the Federal Reserve and the European Central Bank enabled countries like Turkey to obtain cheap foreign resources and endowed Turkey with a rate of about 5% stable growth.

From 2003-2008, Turkey registered an annual growth of 5.9%. From 2009-2017, the rate of growth was 4.9% per year.

However, after 2014, there were signs the stable growth party was coming to an end. External expansionist policies were nearing an end and interest rate hike cycle was imminent. 

From 2014 to the end of 2017, Turkey was able to prolong the business cycle but was severely damaged in the emerging market meltdown of 2018. 

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According to the Central Bank of the Republic of Turkey's balance of payments figures, in the first three quarters of 2018, there were no financial resources available from abroad, while $4.2 billion of foreign funds fled the country. 

During the high growth period, about one-fourth of foreign resources were used in the form of mortgages, auto loans, and credit cards, according to Al-Monitor. 

Consumer loans were the economic miracle that kept domestic consumption alive, but it forced low-income families into insurmountable debts. 

In 2004, consumer credit and borrowing on credit cards constituted 4.6% of the annual national income, which was 24% of total bank credits. By 2013,  the percentage jumped to 18% of the national income, making up 31% of total bank credits. Al-Monitor explains the debt crisis brewing in Turkey:

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Gary Anderson 4 months ago Contributor's comment

What a perfect specimen for helicopter money. At some point consumer credit faulters.