The devaluation of the Turkish lira shakes the financial markets around the world. The currencies of other emerging powers are infected and are under increasing pressure.
The sharp fall of the Turkish lira is bringing huge waves around the world: Argentina has just asked the International Monetary Fund for the prepayment of millions of financial aid; in India the rupee reaches a low point and at many stock exchanges the huge sales of the past few weeks can ensure that the trend continues to fall.
International analysts attribute many of the problems in Turkey to President Recep Tayyip Erdogan's policies, so they are internal anomalies. But on issues such as sovereign debt, political crises and the stagnation of reforms, the emerging powers have open doors, according to a report from Forbes.
Interest rates that were kept at low levels for years led to high debt acquisition, especially in dollars. But in the United States, interest rates have risen again since the end of 2015; due to low unemployment and high growth rates, they can continue to rise. This makes the dollar attractive for investors and at the same time puts pressure on countries such as Argentina, Brazil or South Africa. The US President Donald Trump's tariff dispute raises the fear of a global trade war.
Flight to the dollar. "Because of the growing fears of risk, investors are taking foreign currencies from emerging countries and migrating to safe havens, such as the dollar or the Swiss franc," Nils Ole Matthiessen, Deutsche Bank expert, explains. foreign currency issue. "There are effects of contamination," warns Volker Treier, Head of Foreign Trade of the German Chamber of Industry and Trade.In an interview with Reuters, Treier says that the German economy can still cope with the current situation. Evaluate the low risk of contamination The deficits of other countries are clearly lower than those of Turkey or those of previous crises of emerging powers in Latin America in the early 1980s and in the late 1990s in Asia, says Ulrich Leuchtmann, an analyst at Commerzbank.
But the mood could change quickly, warns Maya Bhandari of Columbia asset manager Threadneedle. "From Turkey, which could be a problem for emerging powers, are capital traffic controls, which could lead to a huge sale of bonds from emerging powers." Investors mainly look at Argentina, Brazil and India, as well as Turkey.
Turkey, the knot has been tightened
The economic policy of President Erdogan and the autonomy of the Central Bank interrogated the confidence of investors. Inflation rose to more than 15 percent and the trade deficit declined, but remains at a high level with a volume of 6 billion dollars. Since the beginning of the year, the Turkish lira has devalued by more than 40% against the dollar.
The investment bank Goldman Sachs estimates that the fall of the lira could cancel the capital reserves of Turkish banks. Calculations by the American bank JP Morgan indicate that Turkey will have to cancel € 153 billion in foreign debt until mid-next year. This corresponds to almost a quarter of the country's annual gross domestic product. With a term of almost 93 billion euros, which must be covered until July 2019, there is a risk of a lack of financial capacity.
Only with a radical change of economic direction does Turkey have the opportunity to overcome this monetary crisis. "The autonomy of the Central Bank must be guaranteed, interest rates must rise significantly and changes must be made in the country's Ministry of Finance," says Ayse Rüzgar of the DZ Bank.
Argentina turns to the IMF
Argentina is also in the crossfire. The huge foreign debt of nearly 200 billion dollars places the South American country in a special vulnerability. Experts believe that President Mauricio Macri has few weapons to keep the fall of the peso in check, which is 45 percent this year. According to specialists, Macri has done a lot with his reform package and strengthening the autonomy of the central bank. The Argentine president "is doing well, but he is doing so with two years of delay," confirms Guillermo Nielsen, a renowned economist in Argentina.
Only two years after the return to the growth path, the Argentine economy is returning to a recession. The government asked for the advance payment of aid agreed with the International Monetary Fund. Due to high inflation, more than 30 percent, the peso is under pressure. That is why the Central Bank has decided to raise interest rates to 45 percent. It remains to be seen what the effect of this measure will be: after years of economic crisis, consumers and businesses have little recourse to credit.
Brazil and electoral chaos
The largest economy in Latin America grew again after two years of severe recession. The IMF calculates growth of 1.8 percent for Brazil, taking into account inflation. IMF experts see the problem elsewhere: high government debt. In addition, the necessary financial reforms must be implemented.
The presidential elections that take place in October also cause nervousness. The national currency, the real one, lost about 20 percent of its value this year and reached its minimum in two years after the PT workers' party had ratified the candidacy of former President Luiz Inácio. Lula da Silva, prisoner for allegations of corruption. Many Brazilians blame Lula and his policy of high spending, also characterized by corruption scandals, the collapse of the Brazilian economy.
India: monetary crisis and growth
In India, the economy grows by seven percent annually, almost like no other country in the world. The external debt and the trade deficit are under control, experts say. That is why crises have less impact than in other emerging powers.
But the fall in Rupee is nine percent this year, with inflation at 4.5 percent. These are figures that influence monetary policy. As a remedy, the Central Bank has raised interest rates by half a percentage point since April. If the national currency continues to devalue, it will be difficult for Prime Minister Narendra Modi to repeat his solid 2014 election victory. It is mainly the Indian middle class who complains about the price increases. Many Indian companies fear that their profit margins will be affected.