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Re-emerging currency mismatches
Turkey currently has the dangerous combination of increased reliance on foreign currency-denominated debt and a sharp depreciation of the lira (Figure 1). When assets and income streams are primarily denominated in the local currency (as is typically the case), foreign currency debt implies a currency mismatch. Currency mismatches can be benign during periods of fixed or stable exchange rates, but when the local currency depreciates, the debt burdens of borrowers increase dramatically. Defaults and bankruptcies follow1 (examples include Mexico in 1994, Thailand and other Asian countries in 1997, and Argentina in ... (full story)