Global Forecast (08-17-2018)


Qatar throws Turkey a lifeline

Amid capital flight and a collapse in investor confidence in the Turkish economy, Qatar has stepped in and pledged $15 billion in new investments in the country, giving the lira a much-needed respite. According to Reuters, the money will be channeled into Turkish banks and financial markets, and it will go toward economic projects, investments, and deposits.

The move is the confidence-booster the Turkish economy needed to temporarily stem the decline of the lira. And that’s exactly what it helped to achieve: the currency is now up from its historical lows from Monday. The ambiguity of the Qatari statement was also likely by design, as it implies that a large portion of the funding may ultimately be injected into an increasingly illiquid Turkish financial system.  However, the risk of a resumption of free-fall remains. The Qatar investment isn’t enough to gloss over the Turkish economy’s structural problems, and we can expect President Erdogan to continue to take a hard line against the United States and the West in general. In a sense, Washington’s sanctions were a gift to Erdogan in that they have allowed him to bestow ownership of the current crisis to a vindictive United States, thus exonerating the president’s own debt-fueled growth policies ahead of June elections. But given Turkey’s massive need for external financing – estimated by the Financial Times to be hovering around $238 billion in the next year alone – all paths are still leading to an IMF bailout. It’s now a question of when, not if.

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