Some investors and economists are skeptical that Turkey’s currency crisis will continue to weigh on global markets.
Though the Turkish lira’s USDTRY, +0.0000% 14% slide against the U.S. dollar on Friday rippled through global stocks and currencies, many markets recovered some early losses, an indication that Turkey’s financial woes are worse than those of other emerging economies but contained in nature.
“Turkey has tended to be more vulnerable,” said Torsten Slok, an economist at Deutsche Bank.
Despite a build-up in emerging-market leverage in recent years, Turkey’s debt denominated in foreign currencies is high relative to most of its peers. That external debt becomes more expensive to repay when Turkey’s lira slides against those currencies. Its current-account deficit is also larger than that of many of its peer emerging markets, such as South Africa and Argentina. A high current-account deficit means its economy requires large inflows of foreign money.
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