Turkey’s Kriz : Deteriorating Balance of

Payments

Group member: Jingxian Zhou

Adel Abaza
Jesse Van Gestel
Muye Li
Zhongyi Ren
 Background of the case:

Turkey’ s
Economic crisis

Current account Financial account TelSim could not pay

decrease increase its default
 Turkey’s balance of payments

Millions of US $
0.01
0.008
0.006
0.004
0.002
0
-0.002
-0.004
-0.006
-0.008
-0.01
1993 1994 1995 1996 1997 1998 1999 2000
Current Account
Financial Account
 Turkish current account, 1998-2000(millions of us $)

Goods export 31220 29325 31664

Goods import -45440 -39768 -54041
Balance on goods -14220 -10443 -22377
Service credit 23321 16398 19484
Service debit -9859 -8953 -8149
Balance on service 13462 7445 11335
Income credit 2481 2350 2836
Income debit -5466 -5887 -6838
Balance on income -2985 -3537 -4002
Current transfer credit 5860 5294 5317
Current transfer debit -133 -119 -92
Balance on transfer 5727 5175 5225
Balance on current account 1984 -1360 -9819
 Turkish financial account 1998-2000 (millions of us $)

Net direct investment 573 138 112

Net portfolio -6711 3429 1022

investment
Net other 6586 1103 8311
investment
Balance of financial 448 4670 9445
account
Case question:

1:
Where in the current account would the
imported telecommunications equipment be
listed? Would this location correspond to the
increase in magnitude and timing of the
financial account?
Solution:
 The imported equipment could not be listed in the current
account because there was no cash transferred, due to TelSim
defaulting on their payment

 As the imported equipment was not listed in the current

account, it can not correspond to the increase in magnitude
and timing of the financial account.

 This increase in the financial account would however

correspond to the decrease in the current account that would
have been partially caused by similar imports that were paid
for.
Case question:

2:
Why do you think that net direct investment
declined from $573 million in 1998 to $112
million in 2000?
Solution:
 Net direct investment declined for 1998 to 2000 due to
investors losing confidence in the strength and stability of
the Turkish economy. This lose in confidence was caused by
a number of factors:

1. Political instability
2. High rates of inflation
3. An unstable exchange rate and the decreasing value of the
lire
Case question:

3:
Why do you think that TelSim defaulted on its
payments for equipment imports from Nokia
and Motorola?
Solution:

 TelSim defaulted on its trade credit to Nokia and Motorola due

to the Turkish lira being devalued in 2001

 TelSim may have had enough lira to cover their purchases at

the previous year’s exchange rate, however due to the fall in
the price of the lira this amount would no longer equate to the
billions of US dollars they owed