Turkey ranks now third worldwide for bankruptcy
Turkey had the opportunity to see the Turkish Lira (TL) retreating from the record level of 7.20-7.26 TL/USD.
The Turkish currency appreciated nearly 4% from those deadly rates, staying now comfortably
below the 7TL/USD level.
However, the same did not happen with the 5-yr CDS rates of its foreign bonds.
What is the big deal with high CDS rates?
CDS ( Credit Default swaps ) are the so-called risk premiums, that indicate the ‘cost’ for someone
to insure their money in the event that an obligation such as currency bond is not paid. In other words,
the PRICE of CDS is the safest indicator of whether an organization, company or state will go bankrupt.
Prices in CDS below 100 points show bankruptcy probability below 1%, while prices above 600 points show
that the probability of bankruptcy exceeds 5%.
What about Turkey CDS rates?
During the last two weeks, the CDS of both the Turkish state and its banks have been
exploded at desperately HIGH prices, indicating that Turkey’s probability of bankruptcy
is extremely high. The CDS level for Turkish state bonds remain so high, that they moved from ranking 6th globally,
few days ago, to the 3rd position now! At 620 bps!
This is an achievement, that, however brings a puzzling question. Why, Turkey now is the frontrunner,
the best candidate among Asian, European and African countries, for filing for bankruptcy on its foreign debt obligations?
Increasing expenses, created a perfect environment for bankruptcy
The problem of Turkey has to do with skyrocketing expenses that relate to imperialistic wars in Syria and Libya.
An unexpected surge in expenses of the Turkish state resulted in a huge hole in the country’s public finance on April.
According to an announcement made by the Treasury and Finance Ministry on May 8,
the Turkish Treasury cash balance this April, posted a deficit of 46.2 billion Turkish liras!
This created a vacuum, a financial hole of -1% of GDP, in just one month!
This financial hole is equivalent to -$6.6 billion!
This was only to a small degree due the drop in real terms of Cash revenues due to coronavirus
(65.8 billion Turkish liras, up 6.8% from April 2019 in nominal terms, which is well below
the current 11,8% inflation, denoting a drop of real GDP by -4.5%)
The biggest problem was a surge in public expenditures to 112.8 billion liras ($16.2 billion), posting an epic leap of 47%!
It is notable that the hole is primarily due to a 30.5 billion liras ($4.4 billion) deficit on the primary
balance.(more details by clicking here)
This should not be a problem, but when combined with the lack of foreign currency funds to cover the needs of Turkish
state and the needs of major Turkish state banks(click here), indicates that Turkey may soon be on its way to serious
financial problems, and perhaps to bankruptcy.
Turkey 5-yr prime CDS rates skyrocketed to 620 bps, which means that the country has a bankruptcy probability
that exceeds 30% in the forthcoming period! Now Turkey lags only Venezuela and Argentina in probabilities of bankruptcy,
without having the US embargo that Venezuela has, nor the vast debt that Argentina brings.
This is by far, perhaps the biggest achievement of President Erdogan!
It seems that the imperialistic dreams of Erdogan coupled by the coronavirus effect,
had jeopardized the country’s financial viability and bring now the country
closer to the doorstep of the International Monetary Fund.