I believe...IMHO... We have about a 50/50 change for a neutral event or some type of hybrid event to a true revaluation. I posted the first article last year and went back to look at it again and I still hope, the CBI's only defense against speculation is to portray the inevitable currency reform as a redenomination. But I still have to keep asking myself why? Why would Iraq want to put themselves in the same finacial position as Turkey presently. As far as the redenomination of Turkey, I doubt there were 250,000 speculators drooling over the possibility of making millions from the redenomination of the desperate
Turkish Lera. After all, the lera was not artificially depreciated, and left with a program rate. I know some will argue with that analogy, but we will see.
We have read a multitude of news releases by Selah pointing to a probable of redenomination of the IQD. Turkey seems to be the refference point on why a redenomination would work.. I have researched many articles about Turkey and found as in all news you have to look at the source first. In my opinion the articles coming out of Iraq need to be evaluated by the source. I'm not talking about Selah, I'm talking about the news agency from which they are delivered. For instance here's an article that was released by Bloomberg about Turkey. I don't think this is where Iraq wants to be.
Why would Iraq want to be a Turkey? Does this sound like a country who's GDP is going to rival China's? This where Turkey stood last year as an investment Risk.
Turkey, S&P Diverge on Economy; Basci Says No ‘Hard Landing’
July 28, 2011, 11:07 AM EDT
More From Businessweek
July 28 (Bloomberg) -- Turkey’s central bank said there was no risk of a “hard landing” for the country’s economy, disagreeing with an assessment by Standard & Poor’s yesterday.
There is no overheating in the economy and the central bank is prepared for any sudden halt in foreign capital inflows, governor Erdem Basci said at a news conference in Ankara today.
Basci’s words were in contrast to the statement by Standard & Poor’s, which said a rapid economic slowdown was likely and the government should aim for a higher budget surplus excluding interest payments to help deal with a widening current account deficit.
“We see no risk of overheating or a hard landing,” Basci said. The bank has the tools to deal with any sudden halt in inflows of foreign investment into Turkey’s markets, he said.
Standard & Poor’s and Fitch have said there’s uncertainty over the outlook for the country’s credit, and the lira is the worst performing currency this year on concern that the current account deficit threatens stability of the economy. The gap has widened to the biggest since records began in 1984. The country grew an annual 11 percent in the first quarter of the year, the fastest rate among the Group of 20 major economies, drawing in more imports of oil and consumer goods.
“If the debt flows stop coming into the economy and if the economy comes to a hard landing and slows down really rapidly, which we think is likely, that could really hit public finances,” S&P analyst Frank Gill said in a phone interview yesterday.
Gill said Turkey’s fiscal position is “too accommodative,” urging the government to slow spending. Basci said fiscal policy is tighter and supports the central bank’s aims after the government pledged to save extra income from a tax restructuring offer.
Basci also disagreed with an IMF assessment last week that the current account deficit may widen to 10.5 percent of economic growth this year. The deficit will remain in single figures, he said today.
The lira rose 1.1 percent to 1.6729 per dollar at 5:43 p.m. in Istanbul, advancing for a third day after reaching the weakest in more than two years on July 25. The main ISE National 100 index of shares gained 2.2 percent to 62,530.88. Yields on two-year benchmark bonds fell 14 basis points to 8.81 percent.
The IMF predicted the expansion of the economy may slow to 2.5 percent next year from 8.7 percent in 2011.
Fitch places Turkey one level below investment grade, while Moody’s Investors Services and Standard & Poor’s rank the country two grades below investment status.
--Editors: Mark Bentley, Steve Bryant
Turkey redenominated in 2005, they are still in trouble and a high risk for investment. If you look at the majority of articles on the web about Turkey they paint a beautiful picture, but the truth is always there somewhere. JMO
Read more: http://dinarvets.com.../#ixzz20Ru7kkGTThis is where they stand this year.
Banking Industry Country Risk Assessment: Turkey
Publication date: 01-May-2012 11:23:51 EST
View Analyst Contact InformationTable of Contents
Major FactorsRationaleBICRA OverviewEconomic Risk: 6Industry Risk: 5Peer BICRA ScoresGovernment SupportRelated Criteria And Research
Strengths:Relatively moderate household and corporate indebtedness.
Bank regulation, supervision, and governance that compare favorably with those of many emerging economies.
Stable banking industry with adequate ability to price risk.
Weaknesses:Low level of wealth and high, persistent structural imbalances in the economy that render banks vulnerable to external shocks.
Vulnerable external position and large current account deficit.
Tightening systemwide funding because of low savings, an underdeveloped debt market, and rapid loan growth.
The banking sector of the Republic of Turkey (foreign currency BB/Stable/B; local currency BBB-/Stable/A-3; Turkey national scale trAA+/--/trA-1) is in Banking Industry Country Risk Assessment (BICRA) group '5'. Our criteria define the BICRA framework as one "designed to evaluate and compare global banking systems." A BICRA analysis for a country covers rated and unrated financial institutions that take deposits, extend credit, or engage in both activities. A BICRA is scored on a scale from '1' to '10', ranging from the lowest-risk banking systems (group '1') to the highest-risk (group '10'). Other countries in BICRA group '5' include China, India, Poland, Slovenia, Spain, Thailand, and the United Arab Emirates. Our economic risk score of '6' reflects our opinion that Turkey has "high risk" in "economic resilience" and "economic imbalances," and "intermediate risk" for "credit risk in the economy," as our criteria define those terms. Turkey has a large and well-diversified economy. However, the level of wealth is moderate and growth has historically been volatile, sensitive to investment and funding flows from abroad. The inflation rate is higher than in most peer countries, and the export-oriented private sector is vulnerable to external market dynamics.
Turkey has big structural imbalances and a volatile equity market. Net external debt remains relatively high and, coupled with recurring large current account deficits, increases the economy's dependence on portfolio flows (foreign sales or purchases of financial assets); foreign direct investment into companies; and cross-border bank borrowings.
We base our assessment of Turkey's credit risk in the economy on the country's relatively low household and corporate debt. One characteristic is the low proportion of housing loans in the system as a share of GDP. We consider that banks have adequate lending and underwriting standards, as well as diversified loan books with little exposure to cyclical sectors.
Our industry risk score of '5' factors in our view that the country faces "intermediate risk" in its "institutional framework" and "competitive dynamics," and "high risk" in "systemwide funding."
In our view, Turkey has improved its institutional framework significantly since the country's economic and financial crisis in 2001, and continues to bring regulations increasingly in line with international standards. While the regulator's track record is short, it has taken a more proactive and prudent stance toward the industry, compared with prior regulatory underperformance. This has resulted in better systemwide transparency and corporate governance practices. In addition, some of the system's weakest banks are out of business, after the failure or takeover of about one-third of the total number of banks in the country in 2001.
Our assessment of Turkey's "competitive dynamics" combines our view of the industry's moderate risk appetite and adequate pricing power. Earnings benefit from strong margins, particularly in the retail segment, and cost of risk has remained manageable in the recent downturn. Banks do not offer high-risk or complex products to their clients. The industry has largely stabilized, in our view, and several large players now dominate the market. While state-owned banks still account for about one-quarter of the market, we do not believe this hinders the industry's stability.
"Systemwide funding" remains a weakness for Turkish banks, in our view. Banks are mainly funded by customer deposits, which however result in asset-liability mismatches because of their short-term nature. Funding from abroad sharply increased in 2010 and 2011, but remains limited compared with that of peers. Domestic debt markets remain underdeveloped, and until recently the private-sector and banks were long crowded out by the high borrowing needs of the sovereign.
We classify the Turkish government as "supportive" toward the domestic banking system. We recognize the government's long track record of providing extraordinary support to the banking system in times of stress.
Why is Turkey Turning to Bullion?
By Ben Traynor
April 11, 2012 • ReprintsThis is what they are doing to correct financial position. Hmmn
Why are Turkey's policymakers suddenly so interested in gold bullion?
Turkey's central bank last month raised the proportion of domestic currency reserves banks can hold as gold bullion – while simultaneously cutting the proportion for foreign exchange reserves to zero.
The move came only months after Turkey's banks initially received approval to hold some of their reserves as gold – and less than a week after reports that the Turkish government is hoping to encourage people to deposit more gold with the country's banking system.
What ever could they be up to?
One explanation is that Turkey satisfies most of its gold investment demand through imports. As BullionVault noted last month, Turkey has joined India and Vietnam in turning its attention to gold as a means of addressing a balance of payments problem.
But there is another, arguably more pressing problem to which policymakers view gold as the solution: Turkey's fragile banking system. The move to boost gold's role in the banking system should be viewed as part of a wider strategy to stave off a liquidity crisis – whereby banks have insufficient liquid reserves to meet their creditors' demands for repayment.
This is a potent fear in Turkey, which just over a decade ago suffered a liquidity crisis that scuppered efforts to rein in inflation and government deficits. Indeed, the Turkish Liquidity Crisis of 2000-2001 is key to understanding recent policy announcements regarding gold. What began in late 1999 as an attempt to solve long-standing and deep-rooted problems ended with a banking crisis and exchange rate collapse.
In December 1999, following years of high inflation and currency depreciation, Turkey announced a stabilization program backed by the International Monetary Fund.
"Our program rests on three pillars," wrote Turkey's economic minister and the governor of its central bank in their letter of intent to the IMF.
"Up-front fiscal adjustment, structural reform, and a firm exchange rate commitment supported by consistent incomes policies."
In other words – like many who have been compelled to throw themselves on the mercy of the IMF – Turkey's politicians pledged to sort out the public finances and put downwards pressure on wages, and therefore inflation.
Another way they would fight inflation was by anchoring the exchange rate. The Turkish lira was to be supported by what several economists have called a "quasi-currency board". Limits were imposed on how much liquidity the central bank could provide to banks – the idea being that if it prioritized the banking system's daily lira liquidity needs it would weaken the currency.
A result of this arrangement, as one Turkish economist points out, was that the volume of liquidity in the system was "basically determined by the 'support of the international community' as well as the existence of 'good climate in other emerging markets'".
For a short while, the program seemed to work. Inflation fell, and capital inflows kept the Lira supported. In reality, though, Turkey was merely storing up problems for later. The current account deficit – the other side of the coin to those capital inflows – swelled from $0.9 billion in 1999 to nearly $10 billion by the end of 2000, according to IMF data.
At the same time, Turkey's banks were building up foreign currency liabilities that would later come back to bite them. One impact of the 2000 stabilization program was that it created an attractive opportunity for foreign investors. With the exchange rate now seemingly stabilized, market interest rates in Turkey more than compensated foreign investors for currency risk.
In addition, the stabilization program lowered the perceived default risk on Turkish government bonds. There was thus an attractive arbitrage, and investors – including Turkish banks as well as foreigners – piled in. Bond prices gained, and interest rates fell, as over $10 billion in net capital inflows washed into Turkey in the first nine months of 2000.
This speculative momentum, unsterilized by the central bank as part of the terms of the program, caused interest rates to “undershoot,” as foreign money flowed in and domestic banks funded bond positions with short-term borrowing. Then things went into reverse.
Capital inflow had already begun to slow down in the second half of 2000, and by September had turned into a net outflow. But it was November when things really started to fall apart. Under other circumstances, the central bank might have been able to sterilize the outflows by undertaking an expansionary stance, providing liquidity to offset the outflows. But under the stabilization program, this was not an option, lest it undermine the lira.
With market liquidity scarce, interest rates rose. Banks that were funding their bond positions through short-term borrowing found their borrowing costs rose while the assets they held went down. Many were forced out of the trade with margin calls.
In addition, rising interest rates made it more expensive for the government to service its debt. This raised the risk of default, further weighing on government bond prices. And as money started to flow back out of Turkey, the pressure on the Turkish lira caused investors to wonder if the central bank could support it. Eventually, on Dec. 6, 2000, the IMF had to step in with a further $7.5 billion.
However, Turkey was only allowed to use this money against a speculative attack should one occur. It could not use the money to support the lira while lowering interest rates, a move that might have eased pressure on bank balance sheets stuffed with government debt.
A second liquidity crisis in February 2001 saw the stabilization program collapse. Turkey entered a deep recession, GDP that year falling by over 5%.
There were other, external factors at work too, which may have played a part and which carry faint echoes of today's environment. A sharp rise in oil prices put upward pressure on inflation and made the current account problem worse. The dollar rose against the euro – a problem for Turkey, most of whose imports are priced in dollars while its exports receive mainly euros.
Another source of pressure was the US Federal Reserve, which raised the fed funds rate from 5.5% to 6.5% over the course of 2000 – reducing the relative appeal to investors of putting their money in higher yielding emerging market securities. Today's Fed seems very far from raising its interest rate, but as the US economy starts to show signs of improvement, investors and policymakers alike are beginning to consider what will happen when it eventually does.
Against this historical background, Turkish policymakers have taken a number of steps in recent months that they hope will be sufficient to deal with today's threats.
The central bank's November Financial Stability Report shows that while the banking system as a whole was viewed as still being reasonably strong, concerns were growing last year about whether it had adequate liquidity to keep things ticking over.
"It is noteworthy," the report says, "that the weight of FX assets and FX liabilities on the balance sheet has been on the rise."
Furthermore, banks' Foreign Currency Liquidity Adequacy Ratio – the foreign currency value of assets compared to value of liabilities of a similar maturity term – has been falling:
In other words, foreigners have been building up claims on Turkey's banks, while the ability of banks to meet those claims has been diminishing. Were asset values to fall too far, banks' solvency could be called into question – and even if banks remained technically solvent, they could still face a liquidity crunch if too many of their creditors decided they wanted their money back at the same time.
Last year, as the euro-zone crisis was intensifying, this looked a distinct threat. The crisis increased the likelihood that foreign lenders, especially in the euro zone, would pull their money from Turkey as they ran into trouble themselves, or demand higher interest rates to compensate for the greater perceived risk.
Anticipating the possibility that banks would need additional funds to meet greater payments to lenders, Turkey's authorities undertook a number of measures aimed at boosting banking sector liquidity, which included the following:
On Aug. 4, 2011, the central bank's Monetary Policy Committee agreed to cut its benchmark policy interest rate – the one-week repo rate – from 6.25% to 5.75%. At the same meeting, the MPC "laid the ground" for additional liquidity provision "in case of possible financial turmoil". This included a reduction in Turkish Lira required reserve ratios – the amount of cash banks have to hold back as a proportion of their assets – as well the central bank providing foreign exchange liquidity "in case of unhealthy price formations due to a decrease in the depth of the foreign exchange market", a measure which came into effect on Oct. 5.
From Sept. 16, banks were able to hold up to 10% of their Turkish lira reserves as dollars or euros. This was raised to 20% on Sept. 30, and 40% on Oct. 28.
From Oct. 14, banks were permitted to hold up to 10% of their reserves in the form of gold bullion. On March 27, 2012, this measure was tweaked, with banks being allowed to hold up to 20% of Turkish lira reserves as gold, while no longer being permitted to hold gold towards their foreign currency liabilities.
It's clear that the authorities want to make sure Turkey's banks have sufficiently liquid reserves to meet their liabilities – and especially their foreign currency liabilities, hence the tweak to prevent gold being substituted for euros and dollars.
Much like 12 years ago, though, the central bank is in a bind. If it uses its reserves to provide foreign exchange liquidity, it risks inviting a speculative attack on a currency that lost 16% of its value against the dollar last year. Similarly, if it is too aggressive in providing domestic currency liquidity it will also undermine the lira.
Turkey has arguably run up against the limits of accommodative monetary policy. And it has turned to gold bullion as a potential lifeboat.
In a sense, Turkey's banks are being encouraged to treat gold as a quasi-foreign currency – but one whose depositors are domestic citizens, who are traditionally less inclined than foreign depositors to pull their money at the first signs of trouble.
Turkey's banks have offered gold accounts since the mid-1990s, but most of the gold in private hands – an estimated 5,000 tonnes (worth roughly $260 billion at today's gold price) – is still held in physical form well outside the banking system. Hence these reported plans to encourage more people to put their gold in a bank.
It remains to be seen how successful any such attempts will be – both in terms of how many people deposit and how effective that will be at supporting the banking system. But if anyone asks you "Why is Turkey turning to gold?" answer them this: "It's the liquidity, stupid."
Now, I have admitted the possibility to a neutral event, but I truly don't think God has that plan.