Turkey’s Trade Deficit Woes

Investors and economists looking for a precedent as Greece tries to emerge healthier from its crisis often cite Turkey. Since 2003, under the stewardship of Prime Minister Recep Tayyip Erdoğan, Turkey has conquered inflation, cut debt, reignited industry, strengthened its banks, and paid off its obligations to the International Monetary Fund. Erdoğan has stabilized politics, too: When Turkey’s top four generals quit on July 30 amid a dispute with the government—the kind of domestic row that sent Turkish stocks and bonds plunging in the past—the markets barely reacted.

Yet Erdoğan, whose party won its third consecutive national election in June, is suddenly facing his toughest economic challenge since assuming office, and Greece’s crisis may make things worse. Although Turkey’s economy expanded 11 percent in the first quarter, that growth hasn’t prevented the Turkish lira from sliding more than 9 percent against the dollar, the biggest loser among emerging-market currencies.