Download - 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
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` 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