SINGAPORE (Aug 20): Turkey’s President Recep Tayyip Erdogan says his country is embroiled in nothing less than an “economic war” with the US, and is now trying to acquire allies to help ensure its survival. On Aug 15, the battered lira rebounded 6% against the greenback, on news that Qatar had pledged to invest about US$15 billion ($20.6 billion) in Turkey. Yet, until Turkey begins taking concrete steps to improve its economic fundamentals, it is really just fighting a losing battle with the market.

Much of Turkey’s current problems stem from its push to grow at all costs. “Many public and private companies increased their leverage to pursue growth, with a substantial portion being foreign-denominated,” says Hou Wey Fook, chief investment officer at DBS Bank, in a note on Aug 13. “Turkey’s non-financial companies’ foreign-currency liabilities now outstrip their foreign-exchange assets by more than US$200 billion, according to central bank data,” he adds, noting that the country’s inflation had hit 15.85% in July 2018.

Now, as the US Federal Reserve winds back its massive monetary stimulus, US dollar liquidity is receding across the globe, and Turkey’s financial profligacy is proving to be unsustainable. “Much of the concern is focused on Turkey’s banks, which have increasingly resorted to foreign wholesale markets to finance their domestic lending,” says Bank of Singapore, the private banking arm of OCBC Bank, in a report led by head of investment strategy Eli Lee on Aug 13.

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