RGE analyst Mary Stokes just published a short piece on Turkey's current account (or rather external financing) vulnerabilities. Other than a couple of minor points such as her statement that "any deficit above 5% starts to ring alarm bells", I don't have major objections to the article, and the the projections she is reporting are in line with the forecasts of local economists I trust. The only point that needs to be added is the resilience of corporate borrowing so far, which, in light of the current financial turmoil, emerges as a conundrum (too much exposure to GreenspanSpeak can be hazardous to your English, such weird words never came to my mind before reading his autobiography a few months ago) . And in fact, with the projections of other parts of the capital account more or less evident, whether this resilience will continue is the million-dollar question. But before answering that question, some quick facts on Turkish corporate borrowing:
- Corporate borrowing is at around USD 125bn (as of end-June), of which only 20% is short-term. Moreover, at the end of 2007, more than half the debt had a maturity of five years or more. Thus, Turkish corporate sector is unlikely to be exposed to a roll-over problem even if funding dries up.
- The Central Bank calculates the currency mismatch at USD 70bn (as of end-March), but this does not take into account that the owners of these companies hold significant FX. Fortis economist Haluk Burumcekci and his team calculate the currency mismatch of corporates and individuals at USD 5.9bn as of end-June.
- Again, CBT reports that foreign borrowing of corporates is extremely concentrated, with around 60% of borrowing in the services sector (40% of which in real sector) and 70% in 250 firms.
Where does all of this leave us? Certain sectors and large corporates could be under risk, but the danger is nowhere near as the media hype a figure of USD 125bn is bringing.
Back to the million-dollar (or 125 billion dollar) question, we could first ask if corporate borrowing in other comparable countries were just as resilient: A casual look at data suggests that Turkish corporate borrowing was indeed more resilient than Eastern European countries with large current account deficits, but there were definitely others such as Brazil with robust corporate borrowing in the first half of 2008. Then, we may postulate that there was some liquidity available in the first three quarters of this year, some of which made its way to corporates in Turkey and other EM. However, it'd be childishly optimistic to expect for the same pattern to hold up in 4Q08 and 2009.
My friends at Istanbul Analytics offer another, really intriguing explanation of the resiliency of corporate borrowing: They argue that "Turkish exports have been underestimated for years, and lots of money has been kept abroad as a result, in forms that are difficult to capture in the International Investment Position surveys. These assets are now being round-tripped to the Turkish economy as loans, to avoid financial taxes and disclosure requirements." Leaving aside the obvious question "why now", I tried to validify their theory by comparing Turkish export data with UN import data country by country (i.e. comparing Turkey's exports to Germany with Germany's imports from Turkey). Simple descriptive statistics reveal that the data are indeed rather different, but I did not continue with the exercise because the differences could just be do statistical errors rather than underestimations. I vaguely remember a reference in the Feenstra Advanced Trade book of a paper undertaking a similar task, so once I come up with an appropriate methodology, I'll come back to this exercise. Until then, the 125 billion dollar question remains unanswered...
Back to the million-dollar (or 125 billion dollar) question, we could first ask if corporate borrowing in other comparable countries were just as resilient: A casual look at data suggests that Turkish corporate borrowing was indeed more resilient than Eastern European countries with large current account deficits, but there were definitely others such as Brazil with robust corporate borrowing in the first half of 2008. Then, we may postulate that there was some liquidity available in the first three quarters of this year, some of which made its way to corporates in Turkey and other EM. However, it'd be childishly optimistic to expect for the same pattern to hold up in 4Q08 and 2009.
My friends at Istanbul Analytics offer another, really intriguing explanation of the resiliency of corporate borrowing: They argue that "Turkish exports have been underestimated for years, and lots of money has been kept abroad as a result, in forms that are difficult to capture in the International Investment Position surveys. These assets are now being round-tripped to the Turkish economy as loans, to avoid financial taxes and disclosure requirements." Leaving aside the obvious question "why now", I tried to validify their theory by comparing Turkish export data with UN import data country by country (i.e. comparing Turkey's exports to Germany with Germany's imports from Turkey). Simple descriptive statistics reveal that the data are indeed rather different, but I did not continue with the exercise because the differences could just be do statistical errors rather than underestimations. I vaguely remember a reference in the Feenstra Advanced Trade book of a paper undertaking a similar task, so once I come up with an appropriate methodology, I'll come back to this exercise. Until then, the 125 billion dollar question remains unanswered...
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