On 13 August 2018 Bas Jacobs, Professor in Economics and Public Finance at Erasmus School of Economics, is asked about the economic situation in Turkey in the Dutch current affairs programme EénVandaag (NPO 1).
The Turkey’s lira has lost more than 40 percent against the dollar this year, largely over worries about President Tayyip Erdogan’s influence over the economy, his repeated calls for lower interest rates, and worsening ties with the United States.
Turkey has in recent years been one of the fastest-growing economies in the world, but its impressive growth numbers were fueled by foreign-currency debt. The country's borrowing resulted in deficits in both its fiscal and current accounts. Making the situation worse for Turkey is President Recep Tayyip Erdogan's preference to keep interest rates low even though inflation is more than three times the central bank's target.
According to Professor Jacobs, foreign banks have many loans outstanding to Turkey and they will get into trouble when Turkey gets into financial problems, because the loans and therewith the assets of the banks lose value. As the exchange rate of the Lira is falling sharply, the Turkish debt becomes more difficult to sustain and this increases the chance that Turkey will default upon the loan. Therefore, Professor Jacobs advices Erdogan to take serious measures, such as increasing the interest rate, slowing down the credit growth and reducing the country's dependence on foreign curreny loans.
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Watch the entire interview and read the corresponding article on EénVandaag (NPO 1), 13 August 2018.