At the doors of purgatory
Defining moments in Turko-American relationship are approaching fast, as an evangelical protestant pastor, Mr. Brunson, lines up for trial, where a guilty sentence could seriously upset the Congress, and even the White House. The trial will come on the heels of the sentencing of convicted Iran sanctions buster Mr. Hakan Atilla, which might trigger US Treasury Department sanctions on Halkbank, and/or other banks.
The severity and timing of sanctions will probably be determined by Ankara’s willingness to play ball in Syria, for which it has now less incentive because Trump revealed his hand. Our audience needs to be prepared for the possibility of US using “the nuclear option” on Turkey.
At home, two recent polls reveal declining support for Erdogan and AKP. They can still win an early election, but by slim margins. The ugly truth is that these polls give little comfort to Erdogan, even if he wishes to head for the polls, while prevaricating could increase the risk of a loss.
This week’s conflicting news flow on whether to ‘rebalance’ the economy or to ‘stimulate’ it, combined with resignation rumors of Deputy PM Mehmet Simsek, suggest that there is a fair amount of confusion, anguish and policy stalemate in Ankara. Our take is simple. Growth will continue to have the priority in the near-term for political reasons -- which, incidentally, appears to be slowing somewhat more noticeably now -- while the relatively more technocratic crews will try to buy time, in what is ultimately an unsustainable course.
The key data release of the week is February balance of payments. We forecast the current account deficit at around $4 billion, which, if accurate, should increase the 12-month rolling deficit to $53 billion, from $51.6 billion in January.
On the corporate front, after Yildiz, Dogus Holding, too, is reported to have contacted its bankers for a loan restructuring deal. A snowball effect of more companies lining up to demand better terms on their debt is a strong possibility. The global and domestic outlook provides little hope for lower loan rates or looser monetary policy, which means stress on companies and banks may accelerate over time.
Shaking his head in utter depression and despair, Cosmo whispers: “Be afraid, be very afraid!”
Please note that our extremely hectic schedules as well as fast-moving developments have compelled us to delay the publication of our Quarterly report to next Sunday. We very much apologize for the inconvenience.
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