For years, Turkey encouraged sectors that lavishly borrowed and spent foreign exchange rather than investments that would generate much-needed hard currency. The party is now over. Ruled by the Islamist Justice and Development Party (AKP) since 2002, the country has amassed a giant external debt of $466 billion. Although the writing was on the wall for months, the Turkish economy hit the rocks last week.
Plagued by a chronic current account deficit and unrelenting inflation and unemployment rates, the Turkish economy’s burden has recently grown with gaping public deficits, resulting in “non-investment” grades by international credit rating agencies. On top of all this came severe tensions with the United States that resulted in unprecedented sanctions on Ankara, culminating in a Black Friday for the Turkish economy Aug. 10.