Question

Turkish economy has struggled with current account deficits since the 2000s. However, although current account balance had a deficit, an adjustment in current account balance was observed in years 2002, 2009 and 2018. Discuss what type of automatic mechanisms and adjustment policies might have contributed to this adjustment. Explain clearly by being specific about the type of the mechanism and policy for each year.

Answer 1

Adjustments in current account balance of Turkey in following years :

i) 2002

There was great amount of Foreign Direct Investment in Turkey, which increased the forex reserves. Thus, there was Financial account surplus. There was this automatic adjustment in the Balance of payment, with deficit in current account and surplus in financial account balanced out.

ii). 2009

In 2007, Turkish government adopted structural reforms, and there mergers and privatization was there along with higher FDI. Forex reserves were high which led to debt financing of current account deficit.

iii). 2018

In 2018, there was a currency crisis, there was depreciation, which made imports costlier and exports attractive. These adjustments contributed to the adjustment in current account deficit.