Turkey: Sustaining the unsustainable

April 01, 1999

Despite persistently high inflation and international financial turmoil, the Turkish economy continues to defy gravity. The country's banks lend to the treasury in lira at high interest rates. As a result, they can offer attractive interest rates on foreign currency deposits too. Armed with a fictitious $50,000, Metin Munir finds out just how good these rates can be and explores the role played by the banks in propping up Turkey's "unsustainable" economy. By Metin Munir.

If I had $50,000, just how much interest could I get?

There is no simple answer. Interest rates go up and down daily and vary from bank to bank. The interest you can get on your dollar from a Turkish bank can be more than four times the figure offered by a US bank. This interest rate variation is even more evident with the Turkish lira. Indeed Mahfi Egilmez, ex-secretary general of the Turkish treasury, calculated that in 1998 the real interest on treasury bills oscillated within a range of some 1,866%.

To profit from fluctuating interest rates it is necessary to do some legwork. Turkish banks do not post their interest rates and face-to-face negotiations are advisable because there is likely to be some room for bargaining. The more money you have and the longer you are willing to deposit it, the higher the interest you are likely to be offered.

So I get out of a taxi in Uskudar (on the Asian side of Istanbul), turn up the collar of my trench coat, and try to look like a man with $50,000 in his pocket.

Turkey: Sustaining the unsustainable

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