Download Turkey Presentation - Wharton Finance Department

Turkish Financial Crisis
November 2000 and February 2001
Presentation by Tanju Yorulmazer
Outline
 Reasons for the crisis
 Macroeconomic factors
 Financial sector fragilities
 Immediate Effects
 Cost of the Crisis
Macroeconomic Factors
 Standby Agreement with the IMF in 1999
 Ambitious program concentrating on
 Tight Fiscal & Monetary Policy
 Structural Reforms
 Comprehensive disinflation program that uses predetermined exchange rate as a nominal anchor
Exchange rate as a nominal anchor
 Appreciation of the local currency
 Imports  Exports 
 Deterioration of the Current Account Balance
 Public Sector debt financed through domestic borrowing
Banking Sector Fragilities
Composition of the Sector
 Banking sector assets account for % 75 of financial sector assets
 State banks account for % 34 of the sector in Dec 2000.
 Very small share of foreign banks (% 5)
State Banks
 Account for % 34 of the sector in Dec 2000.
 Inefficient.
 Used by governments to finance government spending (duty
losses)
 Insolvent
 Rely on very short-term lending to stay afloat.
Distortions in the Banking Sector
 Full Deposit Insurance introduced in 1994
 Weak banks could attract deposits
 Lack of supervision and regulation
 Large share of state banks
 Moving away from traditional banking activities
 Share of loans in total assets:
 % 47 in 1990
% 33 in 2000.
 Finance government deficit
 Borrow short-term abroad
 Buy treasury bills (longer term and fixed return)
 Currency risk
 Interest risk
 Maturity risk
Crisis
 Delay of structural reforms
 Non-sustainability
 Loss
of the current account deficit
of confidence
 Political
instability:
 Shaky
coalitions
 Dispute
between the Prime Minister and the President
Immediate Effects
 Increasing Overnight interest rates
 Capital outflows
 Attack on currency
 Depreciation of the currency
 Banks were severely affected
 Currency risk
 Interest risk
 Maturity risk
Claims of BIS Reporting Banks on Turkey ($bil)
Claims on Turkey ($bil)
38
36
34
32
30
28
26
24
22
20
Q2 98
Q4 98
Q2 99
Q4 99
Q1 00
Period
Source: BIS
Q2 00
Q3 00
Q4 00
Q1 01
Aftermath of the Crisis
 Estimated GDP growth in 2001: -%10
 Estimated loss of state banks: %12 of GDP
 Depreciation of TL: % 50 in two months