ABSTRACT

After the liberalization of the capital account in 1989, Turkey experienced five crises due to sudden stops and reversals of capital inflows, namely in 1994, 1998-99, 2001, 2008-2009 and a fifth one which appears to have started in March or alternatively August 2018 and is still ongoing. The preceding four crises had been analysed by the author in an earlier paper. The present paper aims to compare the early phase of the current crisis with the preceding ones. Since the current crisis is still ongoing, its comparison with the earlier ones is premature. Nevertheless present findings may serve as a starting point for further research on the same theme. A framework for comparing the “calendar of capital flow stops / reversals” is outlined and linked to their simultaneous or delayed incidence on GDP. From March to July 2018, foreign and total capital movements decline significantly, but their negative impact is mitigated by “corrections” in such flows in April and July. From August 2018 onwards, capital flows move into a reversal pattern and adverse impact on the real economy starts to takes place during the two following months. A comparison of individual capital flow items and the current account shows that the ongoing crisis demonstrates no unique feature: The overall pattern shaped by foreign and net capital flow totals are roughly identical. Resident, non-resident flows and “errors and omissions” exhibit parallel or diverging patterns with some of the earlier ones. The relative magnitude of the external shock measured by the “reversal” of foreign or net capital flows as a ratio of GDP in dollar terms of the precrisis period is compared for the five crises. The relative magnitude of the March-October 2018 shock is roughly comparable with the preceding crises. The August-October shock is stronger than the first three crises and is comparable with the 2008-2009 crisis. The paper also includes a brief analysis of the contribution capital flow slowdown on the third quarter of 2016 to the GDP decline during the same period. The paper ends with an assessment of the government response to the current crisis.