TURKEY KRIZ (A)

A Mini-Case
Aguipo, James Jarabelo, Kristelle
06 September 2013

INTRODUCTION
Turkey (officially The Republic of Turkey) is a transcontinental country located in both Europe and Asia
Capital City: Ankara Currency: Lira

Currently, Turkey has the worlds 15th largest GDP PPP and the 17th largest nominal GDP

 In February 2001, Turkeys rapidly escalating economic kriz forced the devaluation of the Turkish Lira. Just as the economy was beginning to boom, pressures on the countries balance of payments and currency rose. This resulted in the economic crisis of 2001

PROBLEMS
How did the problems on Turkeys Balance of Payments and currency affect the devaluation of the Turkish Lira?
1. How did the imported telecommunication equipment affect the countrys current accounts? 2. Why did the net direct investment declined from $573 million in 1998 to $112 million in 2000? 3. Why did TelSim defaulted on its payments for equipment imports from Nokia and Motorola?

AREAS OF CONSIDERATION Significant volatility in the balance of the key international accounts

Turkeys Balance of Payments

Exhibit 1

Turkeys current account had been relatively volatile (generally in deficit), but had taken a severe dive in 2000. The capital/financial account balance was in surplus nearly throughout the period reflecting the massive international borrowing by Turkey.

AREAS OF CONSIDERATION The current account behaved in a relatively inverse manner to the financial account, running deficits in most of the years shown.

Turkish Current Account

Exhibit 2 (In $M)

Turkish Financial Account

Exhibit 3

AREAS OF CONSIDERATION TelSims Default in Payments to Suppliers such as Motorola and Nokia

ANALYSIS
How did the imported telecommunication equipment affect the countrys current accounts?

Imports of capital equipment accounted for most of the increase in net other investment and thus the large negative balance in the Financial Account in the year 2000.

ANALYSIS
Why did the net direct investment declined from $573 million in 1998 to $112 million in 2000?

TelSims purchase of infrastructure and equipment amounted to a trade credit in which they took on debt to finance the project. This investment is not reflected as a net direct investment but a loan which is accounted for in the BOP.

ANALYSIS
Why did TelSim defaulted on its payments for equipment imports from Nokia and Motorola?

The considerable time gap between the time a network is created and its capacity is utilized by revenue-paying customers was not realized.

CONCLUSION
The balance of payments is a statistical statement that systematically records all economic transactions between a country and another.
When investigating potential investments abroad, it is important to examine both the companys financial standing as well as the countrys current economic situation.

END.

Thank you!
Aguipo and Jarabelo
Balance of Payments A Mini Case Study