Question

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Analyze the cases below via open market economy method:
Case of capital flight from Turkey to USA
- From Turkey's economics point of view
-From USA's economics point of view

Answer 1

A number of critical events in recent years have put Turkey and the U.S. at odds. The parallels between certain turns in Turkish economy and clashes in the U.S.-Turkey diplomatic relations are difficult to overlook.

The Turkish economy was becoming increasingly dependent on imports and foreign cash to support much of this growth. When a country imports more goods and services than it exports, it finances the difference by borrowing abroad, creating a current account deficit. This made Turkey vulnerable to the whims of international investors in the event of a crisis.

From Turkish economists point of view

• Turkish economists tend to see foreign direct investment (FDI) as a remedy for the chronic lack of capital accumulation in Turkey.
• The meagre FDI inflows which followed the Customs Union Agreement with the European Union, in 1995, created a deep disappointment among these people.
• Efforts to attract foreign capital have intensified since 2005 and inflows have soared. However, the greater part of the increase is the result of the Turkish government's privatization programme of publicly owned companies, and the acquisition of private firms by large multinational companies, rather than greenfield investments.

From USA's economists point of view

• The Turkish currency and debt crisis of 2018 was a financial and economic crisis in Turkey. It was characterized by the Turkish lira (TRY) plunging in value, high inflation, rising borrowing costs, and correspondingly rising loan defaults.
• The crisis was caused by the Turkish economy's excessive current account deficit and large amounts of private foreign-currency denominated debt, in combination with President Recep Tayyip Erdoğan's increasing authoritarianism and his unorthodox ideas about interest rate policy.
• Some analysts also stress the leveraging effects of the geopolitical frictions with the United States and recently enforced tariffs by the Trump administration on some Turkish products such as steel and aluminum.
• While the crisis was prominent for waves of major devaluation of the currency, later stages were characterised by corporate debt defaults and finally by contraction of economic growth.

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