Turkey Final

8/7/2019 Turkey Final

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Stephanie GoldinKyaw Min Htet

Mark JohnsonMatt Mikulka

Andre Lesean


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It was only when optimistic Turks started

snapping up imports that investors began

to doubt that foreign capital inflowswould be sufficient to fund both

spendthrift consumers and the

perennially penurious government-On the Brink Again, The Economist


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` Turkeys Govt uses separation of powers

Executive is the govt

Legislative is controlled by the govt and the Grand

National Assembly Judicial is separate

` Bulent Ecevit was the Prime Minister of Turkeys

Govt from Jan 1999- Nov 2002, the time of the

Turkeys Kriz


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` 1995-1997 Turkeys economy showed promise

finally creating a surplus again

` 1998 Turkeys plummets and fixes itself in 1999 andthe second half of 2000 then Turkeys economy

crashed


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` The deficit on current account grew to over $9.8

billion in late 2000

Deficit in 1999 - $1.4 billion

` In February 2001 the value of the Turkish lira

decreased significantly due to the rising economic

kriz, or crisis


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The Balance of Payments (BOP) current and financial

accounts recorded major swings in the year prior to

the crisis, the question is what the underlying cause

of the crisis is

Whether the crisis had beenpredictable, and what

early signs of deterioration should have been notedby the outside world


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` The large increase in the current account deficit

should have been seen as a danger

BUT

` Most economies face an increase in trade and currentaccount deficits when experiencing economic growth

` Would relate to this case because the net surplus on

the financial account throughout the upcoming years

indicates a growing confidence in the Turkisheconomys outlook by foreign investors


14/24

` Owned by Uzan family

` The second largest telecommunication provider in

Turkey

` Borrowed $2 B in total from Motorola

` Borrowed $700 M in total from Nokia


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` In 1998, Motorola loaned TelSim $360 M for cellular

infrastructure and equipments

` Then, TelSim further borrowed $200 M to acquire a25-year nationwide cellular license

` In subsequent years, the amount totaled to $2 B

` In 2000, current account grew to over $9.8 B


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` In February 2001, there was a dispute between PrimeMinisterBulent Ecevit and President Ahmet NecdetSezer

` The dispute led to turmoil in financial markets.

` Investors lost confidence in the stability of thegovernment and pulled out more than $7 billion fromcentral bank reserves.

` The interbank interest rates increased to 7,500percent.


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` Since both Motorola and Nokia are both foreign

companies, they had to follow a strategy that was

very subjective towards the Turkish Government. The

companies had to seek international authorities to tryto get a payback from TelSim.

` Nokia and Motorola should explore the potential

telecommunications market in foreign countriesbefore financing such large transactions so that they

do not end up with payments being defaulted.


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The government let the lira float. Consequently,

the lira depreciated.


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Where in the current account would the imported

telecommunications equipment be listed?

Would this location correspond to the increase inmagnitude and timing of the financial account?


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x The TelSim equipment would appear as an import ofgoods in the Current Account. Financing TelSimthe equipment would be included in Net OtherInvestment.

x Capital equipment most likely accounted for most of

the increase in Net Other Investment and the large

negative balance in the Financial Account in year2000.


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Why do you think that net direct investment decline

from $573 million in 1998 to $112 million in 2000?

Solution:

` A number of factors like political instability and high

rates of inflation caused net direct investment to loose

confidence in the strength of the Turkish economy.


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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 because of the devaluation in the Turkish

Lira in 2001


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` Reasons for deterioration

The case of TelSim

Rapid jump in imported goods and merchandise in2000

Little change in services trade and income accounts

Massive increase in net other investment

Political instability

Turkey Final

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