Fire in the marketplace
The phrase in the headline is a standard cliché that is used in Turkish newspaper headlines, if you can still use it. Media, business circles and even market insiders may be too afraid to put it in a headline at the moment, but it is the undisputed truth in the Turkish economy these days. And the president’s inflammatory remarks are only adding fuel to the fire.
President Recep Tayyip Erdoğan may be obsessed with the interest rates, but the Turkish public has one real psychological definition of an economic crisis: the increase of the U.S. dollar. When interest rates go up, very few understand its effects in the grocery store but when the dollar goes up, everyone feels the heat.
So here is one big prediction coming from a real political and economics insider. And I write that boldly.
In a short time, $1 will equal 1 euro.
Last week, during a very interesting political consultants’ conference in Istanbul, PR executives and marketing managers were quietly whispering how hard it had become to get payments from their customers. The backbone or the Turkish economy, SMEs (KOBI) are struggling to make ends meet these days. Checks are bouncing; middlemen are emerging to lend money at higher rates than normal.
Nobody dares to report it, but rapid bankruptcies are seen in cities like Antalya and Gaziantep. They are important hubs of trade and tourism and normally should be immune to currency crises as they do business in either the dollar or euro. But unfortunately, they have very little opportunity to survive until the elections.
Credit card debt has reached such a critical point that there are about 3.9 million citizens with card debt they will never be able to pay. About half a million small business have shut down in the past decade, as they were not able to survive the brutal rise of shopping malls. There are already subprime lenders in the housing market that hound for unpaid mortgages.
Under Erdoğan, the Turkish government has embarked on massive infrastructure projects, creating a huge debt balloon for the construction sector. All big companies are working with numerous subcontractors that use very low paid workers and are getting huge commissions. Now, even the big companies are in a crunch to get paid. High-rise residences and office buildings in Istanbul are ghost skyscrapers soon to be hosting another wave of Iraqi or Syrian refugees.
So it will not be a big surprise if Turkey all of a sudden allows the U.S. to use the İncirlik airbase in the fight against the Islamic State of Iraq and the Levant (ISIL). It will not be a big surprise if Turkey accepts some of the conditions of the coalition and may even say yes to a Syria under President Bashar al-Assad. If your money is tight, you will have to dance with the ones that have it, even if it hurts your principles, and even if it takes a short time.
But above all of this debate, there is one place that Erdoğan should be really careful about: Kapalıçarşı (the Grand Bazaar).
Last week when the dollar was killing the entire market, the open currency and jewelry market in Istanbul’s historic bazaar was furious over the president’s remarks. “I cannot eat gold or silver,” one merchant said. “We do not care about his interest rate madness. People are closing their shops in the malls without even making one sale. How are we going to get food?”
This is not a street vendor speaking. Not even a small shop owner. These are guys that trade currencies in the open market and they hold the pulse of all businesses that need international currency. So when the Grand Bazaar starts to hurt, one should be afraid. Very afraid. Otherwise get ready to witness Tehran 1979.