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Where to Find Government-Approved 15% Interest RatesBy Graham SummersFriday, November 9, 2007 Mustafa Kemal Pasha didn't like headscarves.
He had just broken 623 years of rule by the Ottoman Empire. He had come through World War I, occupation by the Allies, and wars with Armenia, France, and Greece (1919 to 1922). And now he wasn't about the let Turkey, his homeland, fall back to religious rule. Pasha wanted a fully modern country modeled on the West.
He made it illegal for women to wear headscarves – the traditional dress for Muslim women – in universities, government buildings, and other public places. He also legalized alcohol and tobacco.
Pasha wasn't anti-religion. He was simply anti-religion mixing with politics. This was a recipe for tension in a population that was more than 90% Muslim. However, the war hero, celebrity, and staunch patriot (he changed his last name to Ataturk, meaning "father of the Turks") knew how to kick-start an economic boom. Turkey's economy grew at an average annual rate of 6% from 1924 to 1985.
Nowadays, you don't hear much from Turkey except when it comes to attacking Northern Iraq. It's a shame though, because Turkey has plenty for an international investor to like. Turkey's service-driven stock market has been in a nice uptrend for the past five years, with the only available Turkish ETF climbing 390% – compared with a 57% gain in the S&P 500.
In 2002, the International Monetary Fund loaned Turkey $16 billion. As part of the deal, Turkey dropped inflation from its historical average of 30% down to the single digits. Since then, Turkey's GDP has grown by an average rate of 7.2%. It's now the world's the seventh-largest producer of agricultural output. Textiles and clothing account for 16% of industry, with oil refining a close second at 14%.
The Turkish government also created a new currency – the new lira – as part of the IMF deal. With an exchange rate of 1,000,000 old lira to one new lira, it was essentially an inflation write-off, a way to start over. This new life for Turkey's finances has produced a great opportunity for income investors.
The Turkey Central Bank currently has interest rates set at 16.75%. You could simply buy a bond from the Turkish government and make nearly 17%. However, Standard & Poor's ranks Turkey's credit at BB-, below investment grade.
I want those yields. But I want my money to be safe. So I found a backdoor into Turkey. It's a AAA-rated bond, backed by the German government. It yields 15%, plus you get the appreciation of the new lira against the ever-plummeting U.S. dollar.
It's getting more and more profitable to look for income outside the dollar.
Good investing,
Graham Summers
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