Turkey Report 2009
The downturn has not been comfortable for Turkey. Exports are collapsing. Unemployment is high, at around 15%, and rising. Youth unemployment, at around 25%, is particularly worrying, undermining one of the macro economic factors Turkey has going for it – its young population. It is in the process of negotiating an IMF loan, a stark reminder of its economic problems. And it has an illustrious history of economic problems morphing into political ones.
Yet optimists can look at the situation through a different set of indicators, revealing a more hopeful outlook. It is true that manufacturing is in trouble in Turkey, as it is elsewhere. But its banking sector is the envy of Europe: its banks have capital reserves in well in excess of Western norms, with no significant hard-to-value assets to complicate matters for their managers.
The country is enjoying one of the longest periods of stable government it has ever known, with a pragmatic, market-friendly government remaining in power with a decent mandate – albeit, at 38%, a smaller one than it would have hoped for on the back of recent regional elections. Few now anticipate a military coup, regardless of unemployment levels.
Turkey is also a country that has experience of upheaval, and it is well equipped to cope with whatever hardship the downturn brings. The memory of its 2001 crisis is fresh, and has served to contain the effects of the latest global crisis on Turkey, having prevented the country’s financial institutions from participating in the credit bonanza as the bubble inflated.
It also made the public more sanguine about the future than has been seen in much of the West, where widespread panic has only exacerbated the problem. When the upturn comes, Turkey is in a good position to follow the upward trajectory earlier than most.
Until then, Turkey remains in the doldrums, very much part of its emerging markets peer-group and suffering from a general aversion to emerging markets exposure. Its currency is weakening steadily, though by historical standards it is faring well relative to other EM currencies. Its equity market is a wasteland of primary inactivity, though it can at least boast stability, while behind the scenes, the exchange is developing its infrastructure to ensure it is well prepared when the market turns.
The corporate loan market is a brighter spot, benefiting from the country’s healthy banks, and although NPLs are rising, they remain low in absolute terms. Banks remain open to business for Turkish corporations looking for financing. Financial institutions are in a trickier position: foreign banks are looking to redirect their attentions to their home markets. Yet their health makes them attractive counterparties, so most are confident they can raise what they need.
The corporate bond market – still embryonic – shows signs of approaching full term. Many are watching with interest to see if this market can provide a new avenue for financing – particularly for the largest and most prestigious corporates, in what could be one of the more interesting themes for the second half of 2009.
Yet blocking the way for the emergence of new markets is the success of Turkey’s sovereign bond market. A very adept borrower, Turkey has an unfortunate knack of mopping up demand for exposure to the country, leaving relatively few investors with the appetite to take on more via corporate bonds. But at least the state looks capable of raising the money it needs – both through bond issuance and, in all likeliness, via the IMF.