Nation Risk & Emerging Markets Course: Professor Michel H. Bouchet A Risk Analysis of Turkey Daniel Smith Peter Blahnik Alberto Lopez April 2002Slide 2
Turkey Source: Central Intelligence AgencySlide 3
I. TURKEY AT A GLANCESlide 4
Historical Overview 1923 Turkey established from the Turkish leftovers of the Ottoman Empire. T he nation initiated common laws to supplant conventional religious fiats. 1945 Turkey joined the UN . 1952 it turned into an individual from NATO. 1974 Turkey involved the northern part of Cyprus to keep a Greek takeover of the island; relations between the two nations stay strained. Occasional military offensives against Kurdish separatists have disjoined part of the populace in southeast Turkey and have drawn universal judgment.Slide 5
Government & Political System Government sort : republican parliamentary vote based system. Legitimate framework: got from different European mainland lawful frameworks; acknowledges mandatory ICJ purview, with reservations. C hief of state: President Ahmed Necdet SEZER (since 16 May 2000) . Government head: Prime Minister Bulent ECEVIT (since 11 January 1999) . Monetary clergyman: Kemal Dervis Head of armed force: General Cevic Bir Source: Financial TimesSlide 6
Ethnical Features, Culture & Religion Ethnic gatherings 80% Turkish 20% Kurdish Religion 99.8% Muslim Languages Turkish Kurdish Armenian GreekSlide 7
Social Indicators Population: 66, 493, 970 (est. 2001) Source: World BankSlide 8
Geographical Features Natural assets: antimony, coal, chromium, mercury, copper, borate, sulfur, iron metal, arable area, hydropower . Land Use: Source: Central Intelligence AgencySlide 9
Geographical Features Natural perils: extremely serious seismic tremors, particularly in northern Turkey, along a bend reaching out from the Sea of Marmara to Lake Van . Source: British Broadcast Corporation Environment issues: water contamination ; air contamination; deforestation; danger of oil slicks .Slide 10
Underground Economy 1. Underground economy makes questionable authority macroeconomics totals. Economy strategy choices are liable to be Ineffective. Illustration: Crisis in Turkey 1999. 2. Underground economy makes out of line rivalry conditions for firms. In Turkey usury is more than 20% of aggregate volume of saving money area.Slide 11
Volume of underground economy Underground economy makes up $100 billions (half of Turkey national salary ) . Source: The Fraser InstituteSlide 12
Measuring the underground economy Different strategies respect distinctive figures. The absence of essential factual information in numerous field in Turkey confines the unwavering quality of the outcomes. Source: Central Bank of TurkeySlide 13
Measuring the underground economy Source: The Fraser InstituteSlide 14
Beware Turks bearing telephones! Documented claim to recover $3 billion owed by Telsim (2 nd biggest portable system). Telsim controlled by the Uzan family. Includes four numbers of "criminal action" under the Racketeer Influenced and Corrupt Organizations Act (RICO). Occupied advances to other family claimed organizations "through an intricate plan of double dealing and terrorizing". Advances should back the securing of base stations to support the Telsim system. May 2001, Uzan family neglected to pay $728m reimbursement to Motorola – pardon degrading of Turkish lira. Uzan\'s are known as serial fraudsters. They have been in question with Turkey\'s capital business sector controllers over budgetary rearranging for quite a while. Turkey\'s validity could endure and global financial specialists modest away. Nokia and Motorola ought to have done their examination.Slide 15
II. TURKISH FINANCIAL CRISIS 1994 & 2001Slide 16
Turkey Crisis 1994 Overvaluation of TL between 1989 – 1993. Expanded Trade deficiency Capital flight Decrease of storesSlide 17
Macroeconomic Scenario Before Nov 2000. Review 1. Fundamental financial aspects shortcomings -Current record shortage -Severe issues in the keeping money division -Inflation 2. Political flimsiness. (Disappointment of the December 1999 basic change consented to with the International Monetary Fund (IMF)Slide 18
Macroeconomic Scenario Before Nov 2000. Expansion. Turkey had experienced high and relentless expansion for over two decades. Roots: Fiscal shortage because of: 1. Wasteful assessment framework - unregistered economy 2. High farming appropriations 3. shortage in the general population ventures Government approach: fund its deficiency through residential and outside getting, which lead to increment in the cash supply. Results of the increments of the cash supply: 1. Ascend in the value level 2. Deterioration of the Turkey\'s liraSlide 19
Current Account Deficit Nov 2000 GOVERNMENT POLICY EXPORTS&IMPORTS MORE EXPENSIVE DEFICIT CURRENT ACCOUNT WEAKEN COMPETITIVENESS OF TURKEY PRODUCTS DEVALUATION INCOMPRESSIBLE IMPORTS INCREASE IN PRICE OF FINAL GOODS INFLATIONSlide 20
SPARK OF THE CRISIS. (Nov. 2000) 1. Powers at first helped liquidity 2. Serious liquidity deficiencies in the saving money framework Massive ascent in financing cost Stock trade tumbled down pointedly Sudden capital surge and universal stores fell vigorously 3. The IMF interceded rapidly. Credit expanded by US$7.6bnSlide 21
Spark of the Crisis (Nov 2000) Source: Australia & New Zealand Banking Group LimitedSlide 22
Spark of the Second Crisis (Feb 2001) President Sedar blamed the legislature for not doing what\'s necessary to handle defilement. (political shakiness) 1. Quickly the universal stores tumbled down (capital outpouring) 2. Overnight enthusiasm taking off 3. The legislature permit the lira to drift.Slide 23
Spark of the Second Crisis (Feb 2001) Source: Australia & New Zealand Banking Group LimitedSlide 24
Capital Flight from Turkey All divisions Capital outpouring of US$ 10.6 billion Banking segment Source: BIS monetary insights 6A & 6BSlide 25
III. MACROECONOMIC ANALYSISSlide 26
Real GDP Growth (%) Earthquake 2000/2001 emergency 1994 emergency Source: Central Bank of TurkeySlide 27
GDP - Composition by Sector Sectors of the economy: Sector development: Source: Central Intelligence AgencySlide 28
Inflation Source: Australia & New Zealand Banking Group LimitedSlide 29
Trade Analysis Source: Central Intelligence AgencySlide 30
Trade Analysis Source: Central Intelligence AgencySlide 31
Exports & Imports (yearly US$ billion)Slide 32
Trade Partners Source: Central Intelligence Agency strong/stable exchange accomplices not subject to one country for exchangeSlide 33
Balance of Payments Source: IMF, Letter of IntentSlide 34
Trade Openness Ratio (X+M/GDP) Source: IMF, Letter of IntentSlide 35
Terms of Trade (fare costs/import costs)Slide 36
External Public Debt Outstanding by Debtors Source: BISSlide 37
Liquidity Ratio Current record parity/GDP Source: IMF, Letter of IntentSlide 38
Liquidity Ratio Budget shortfall/GDP Source: IMF, Letter of IntentSlide 39
Solvency Ratio External obligation/GDP Source: IMF, Letter of IntentSlide 40
Solvency Ratio ST Debt/outside stores Source: IMF, Letter of IntentSlide 41
IMF Influence Total advance size: 16.3bn USD Conditions of the advance: Adopt medium-term financial system (plot in letter of plan) Keep macroeconomic approaches in-accordance with fortified system received May 2001 Continue auxiliary change of Turkey\'s private and managing an account segments Meet necessities as booked in the understandingSlide 42
Projected Obligations to IMF (in millions SDRs, in light of existing utilization of assets and property of SDRs) Source: IMF, Letter of IntentSlide 43
IMF & Turkey has met all conditions laid out in 2001 by their due date Many changes were finished in front of calendar Political precariousness in Summer \'01 lead to ascend in loan fees, however question has been retouched September 11 occasions hurt Turkish economy and the subsidizing procedure anyway it is gradually enhancing Due to September 11, Turkey needs to alter benchmarks sketched out in their advancement plan Last letter of purpose marked January 28, 2002Slide 44
World Bank Influence Works with IMF and different IFIs on rebuilding arrangements. World Bank focuses on long haul development and diminishing monetary powerlessness. New Economic Program stresses: open division change, saving money area change, advancement of business sectors and fortifying social help.Slide 45
International Bank of Reconstruction & Development June 7, 2001 Turkey approaches IBRD for Special Structural Adjustment Loan of 1.2 bn USD for FY01-03 period on top of 5 billion USD effectively vowed. 4 billion USD expected to bolster basic changes. 1billion USD will make a base for loaning, especially to bolster social and natural undertakings.Slide 46
International Financial Corporation IFC to give backing to money related division change and corporate rebuilding. Turkey represents 4.6% of IFC portfolio. IFC corporate customers are utilized and trade arranged.Slide 47
MIGA Turkey\'s offer of MIGA portfolio: 165 million USD. MIGA has not had any issues with its assurances in Turkey. MIGA keeps on having solid interest for exercises identifying with Turkey.Slide 48
IFC & MIGA Program FY1998-2001 Source: World BankSlide 49
Foreign Direct Investment Establishing an organization in Turkey includes 19 stages and takes no less than ten weeks. Indeed, even the administration concedes this is "pointlessly confused." Turkey is arranging an Investment Promotion Agency. Need changes to expel impediments to local and outside speculation. Duty and bookkeeping changes are likewise expected by the following spending plan.Slide 50
IV. Venture FRAMEWORKSlide 51
Taxation & Investment Incentives 1998 New assessment Act. - diminish salary charge load o
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