Staying ahead of the crisis in Turkey
Doing business in Turkey? Proceed with caution. Since the attempted military coup in 2016 the economy has taken a hit and Turkey’s government is making sweeping changes to its political, legal, and economic systems.
One of the current market concerns in Turkey is foreign debt held by the private sector. The debt grew to $245 billion by the end of April 2018. Of that amount 18.6 billion must be paid within 12 months. In addition to rising foreign debt, political instability has affected market health and investor confidence.
Many analysts are questioning Turkey’s market stability, however the current government is resisting attempts at market correction. Despite pressure from the financial sector, President Erdogan will not approve a rise to the interest rate and blames foreign governments for the economic downturn. The Lira has also dropped in value against the dollar and inflation is at its highest point in 15 years.
While producers would normally move to pass rising costs onto consumers, the high rate of inflation has consumers buying less. The government has also raised energy costs and increased the tax rate on deposits of foreign currency. Local producers are now facing higher operating costs and lower profits.
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How can companies mitigate their credit risk?
- Get paid in advance. If that’s not possible, ask for security – i.e. Letter of Guarantee.
- Do not accept promissory notes or checks! Letters of Credit are a more secure option.
- Keep up to date on your customer. The market is unstable and things can change quickly. If a customer is delinquent, do not wait more than three months to take legal action.
- Name Turkey as a competent court of jurisdiction in contracts with Turkish sellers to avoid issues in case of a dispute.
- If you use general terms and conditions, make sure that they are signed by your customer.
Latest Important Events:
- In the Turkish Parliamentary election in June Erdogan won the presidency in the first round and became the first President of the new system in Turkey.
- Recently, on July 18, 2018, the ‘State of Emergency’ was lifted. Erdogan’s government has obtained much more power.
- President Erdogan will now control a government that has no prime minister and reduces the role of parliament. He and his party control judicial appointments and can legislate by decree.