Ten years later

The economic crisis? For Turks that’s not something we are slowly recovering from now, but something they went through ten years ago. In 2001, Turkey experienced one of the hardest economic periods ever. But the lessons learned from the mistakes leading to the 2001 crisis saved Turkey from being hit very hard this time. So, fast forward? Or better be careful?

I just finished writing a story about the Turkish economy. As part of my research I interviewed four business men and women, of whom two work for Dutch companies investing in Turkey and two work for Turkish companies. Visiting the (huge!) Turkish companies, I heard the word ‘investment grade’ buzzing around. Turkey should become an ‘investment grade country’, and I later found out that the whole Turkish business world agrees. The market is ready for it.

Let me explain. Worldwide, there are three big ‘investment grade agencies’. They make economic analysis of many countries and decide how big the chance is that debtors in that country will pay off their debts. It’s an indicator for how safe it is to invest in a country. If there is a good chance that as a creditor you will get your money back, the country is considered ‘investment grade’. Turkey is now just below that level, in the ‘non-investment grade’ zone. That’s the highest status in the unsafe department (below ‘non-investment grade’ are categories like ‘speculative’, ‘substantial risks’ and ‘highly speculative’). The practice is that investors follow the up- and downgrades of the agencies: if an upcoming economy is upgraded to ‘investment grade’, foreign investors will come pouring in.

The Turkish business world thinks Turkey is unfairly treated. They say in practice Turkey is already ‘investment grade’ but the agencies refuse to give the official status. But for an upgrade, political stability is also needed, and with the general elections coming in June, the agencies chose to wait. It is expected that Turkey will become ‘investment grade’ in the second half of this year.

Critical analysts though think that that might be just a bit too early. A stream of investment might drive up inflation (now only 5 percent, coming from 70 tot 80% ten to fifteen years ago!) and immediately endanger the newly acquired status again. They say it would be better not only to wait for the elections, but also wait for the policies of the new government concerning the reduction of foreign debt and the increase in savings.

And that completes the circle back to 2001. Turkey’s banking system has been totally revised since the crisis and that’s the main reason Turkey wasn’t so much affected by the current crisis. But not all the problems of those days are totally solved. Companies are too much focused on the domestic market (exports make up only 17% of the economy) and invest only with loans, not with savings. That makes the economy vulnerable. What if Turkey becomes ‘investment grade’, foreign investors come in even greater numbers than now, and then inflation goes up, or politics get somehow out of hand? What if foreign investors then decide to leave Turkey?

That’s exactly what happened a bit more than 10 years ago: foreign investors left in a rush, leaving Turkey and its banks penniless. It was one of the lead ups to the crisis. It left thousands and thousands of people suddenly unemployed, resulted in shortages of everything, from medicine to bread, made the national valuta worthless and the interest rate to rocket to as high as 3000%.

Okay, something like that is unlikely to happen again. But still, it would be a shame to break the growth of the Turkish economy by getting too eager. Maybe proud Turks shouldn’t see it as something unjust that their country is not ‘investment rate’ yet, but cherish it for as long as it takes!