Erdogan's flying financial carpet unravels.

Erdogan's flying financial carpet unravels. (AsiaTimes).

Turkey's President Recep Tayyip Erdogan has a growing list of enemies. "Among his targets" at a recent address to a Turkish business group "were The New York Times, the Gezi events of 2013, credit rating agencies, the Hizmet movement, the Koc family and high interest rates," Zaman reported September 18.

Erdogan earlier had threatened to expel rating agencies Moody's and Fitch from Turkey if they persisted in making negative comments about Turkey's credit.

Turkey's financial position is one of the world's great financial mysteries, in fact, a uniquely opaque puzzle: the country has by far the biggest foreign financing requirement relative to GDP
among all the world's large economies, yet the sources of its financing are impossible to trace. I have analyzed sovereign debt risk for three decades - including stints as head of credit strategy at Credit Suisse and head of debt research at Bank of America - and have never seen anything quite like this.

At around 8% of GDP, Turkey's current account deficit is a standout among emerging markets. It is at the level of Greece before its near-bankruptcy in 2011. Where is the money coming from to cover it?

A great deal of it is financed by short-term debt, mainly through borrowings by banks.

Analysts close to Turkey's ruling party claim that the unidentified flows represent a political endorsement from Turkey's friends in the Gulf States.

If mystery attends Turkey's past economic performance, the future is all the cloudier. Erdogan's power rests on his capacity to deliver jobs.

Despite the largesse of the Gulf States, Turkey is locked into a vicious cycle of currency depreciation, higher interest rates, and declining economic activity.

If the Turkish lira drops sharply, the cost of debt service to Turkish companies will become prohibitive, while the cost of imports and ensuing inflation will depress Turkish incomes. By some measures Turkey already is in a recession, and it is at risk of economic free-fall.

That explains Erdogan's propensity to shoot the messengers: the rating agencies, the central bank, and even the New York Times. For the past dozen years he has made himself useful enough to his neighbors to stay in business. His magic carpet is unraveling, though, and his triumph in the March elections may turn out to be illusory much sooner than most analysts expect. Read the full story here.



Spengler is channeled by David P Goldman. He is Senior Fellow at the London Center for Policy Research and the Wax Family Fellow at the Middle East Forum. His book How Civilizations Die (and why Islam is Dying, Too) was published by Regnery Press in September 2011. A volume of his essays on culture, religion and economics, It's Not the End of the World - It's Just the End of You, also appeared that fall, from Van Praag Press.