Turkish Lira

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?

The imported telecommunications equipment would have been listed in the "Goods: Imports" sub-account of the Turkish current account. This location would have corresponded to the increase in magnitude and timing of the financial account since as the financial account was increasing tremendously due to the 7-million-of-dollars augment in the "net other investment" sub-account, the imports of goods account would have also increased, diminishing the impact of the surplus in the former account mentioned. Additionally, the financial analyst, Ho-Don Yan, in his article "Casual Relationship between Current and Financial Account" states that the current and financial accounts are interrelated in both, developing and developed countries, since the financial account's balance help to decrease the current account's deficit or vice versa; and this decreases the huge imbalances on the Balance of Payment of any country, which creates more stability (par. 3)

Works Cited

Yan, Ho-Don. "Casual Relationships between the Current account and financial Account." Interactive Business Network Resource Library. Resource Library, 28 Nov 2011. Web. 20 Feb 2012.

2. Why do you think that net direct investment declined from $571 million in 1998 to $112 million in 2000?

The main reason why Turkey's net direct investment suffered such a big declined was mainly because of the impact of the Asian financial crisis in 1997 and 1998 ("Turkey in Information Age"), which was provoked by a shortage of foreign exchange rate that caused the dramatic fall in value of most of the Asian countries, and inadequate capital allocation according to Dick K. Nanto, Specialist in Industry and Trade Economics Division ("The 1997-98 Asian Financial Crisis"). In addition, Turkey suffered from political instability and two damaging earthquakes. All these factors caused people did not want to invest in Turkey due to the fear of further economic and political problems; besides the acquisition of ownership and therefore risk that participating in direct investment carries on is the reason why the net direct investment cash flows were the ones that suffered the most and not the portfolio or other investments. To support this, according to World Bank, Turkey's GDP declined by 7.25% from 1998 to 1999, and only grew 7.73% from 1999 to 2000. In these same periods the net direct investments cash flows declined by 76.92% and 18.84% respectively. Furthermore, the LIBOR 12-month Interest Rate declined by 7.37% from 1997 to 1998, which made investments less attractive than in other countries, decreasing net direct investments.

Turkey Financial and Economic Data (World Bank)

1997 1998 1999 2000 2001

Foreign