The Turkish lira crashed

The Turkish lira crashed, falling by almost 50% against the USD over the last 12 months. Good news for Malaysians going for holiday in Turkey. Bad news for Malaysian companies like MAHB and IHH which have big investments in Turkey.

All eyes are watching what Turkey’s President and the Central Bank do next. The Turkish problem has similarities with the Malaysian 1997 recession and currency crisis. The Malaysian economy had just come off a period of high growth. Like Turkish companies too, many Malaysian companies had borrowed in foreign currencies though revenue was in Ringgit. These Malaysian companies had wanted to take advantage of the low interest rate from borrowing overseas e.g. issuing Samurai bonds. Instead, they got hit big time by the Ringgit’s depreciation.

Malaysia resisted going to the IMF for help, slapped on capital controls. Malaysia managed to get out of the recession and currency meltdown in one piece (though the Ringgit never managed to recover back to the pre-recession levels). What will Turkey choose to do next?

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