Page 8 - TURKRptJun20

The government is aiming to curb the trade deficit with import compression measures, while the tourism efforts amid the ongoing pandemic are even more desperate.
Dividend payments were at the behest of the government capped at 25% of 2019 net income while, according to the latest international investment position data from the central bank, non-residents had $47bn at Turkish lenders; $32bn in FX deposits and $15bn in lira deposits.
Let’s say the government somehow manages to neutralise the ‘balance on goods and services’ as it would not be possible to import anything if at some point in time the country has no FX and cannot borrow or buy on credit.
However, there was a $12bn outflow via the primary income item in 2019 and a current account deficit of a minimum $10bn is expected for 2020, provided the government does not introduce capital controls on dividends and interest payments.
Financial account
Turkey’s real problem since the August 2018 lira crisis has been its financial account​. It was systematically overlooked amid loud praise for Turkey’s adjustments in its current account and currency while at the same time billions of dollars flew out of the country.
As of March, a total of $7.7bn had departed via the financial account. There was on the other side a $0.8bn inflow through net foreign direct investment (FDI), with the 12-month rolling figure brought to $5.6bn.
Let’s consider that the FDI flows also converge to zero amid the current global conditions if fire sales in the wake of an even sharper lira devaluation and uncontrolled bankruptcies do not happen.
Portfolio outflows under financial account
The main driver behind the financial outflows was the portfolio investments account. ​Everyone has heard how foreigners are hurrying and scurrying away from Turkey.​ They sold a net $3.3bn in March.
It was interesting to see how a net $2.28bn of foreign financial asset purchases by banks in the month brought total portfolio outflows to $5.6bn.
Given the present market conditions, it is not possible for banks or others to officially buy securities abroad without permission. The March outflow could be attributed to the banks repurchasing their own eurobonds but, in any case, they would not be able to continue with this strategy.
According to the latest available weekly figures from the central bank, foreigners still had $7bn of domestic government bonds and $21bn of equities as of May 15.
The banks are buying up government paper at any price to meet the asset ratio requirements lately imposed by officials while the central bank is also purchasing government paper. So the foreign investors will have counterparts if they seek to offload their remaining $7bn of government paper but it would look even odder if they were to truly zero their holdings in the asset category.
In the equities market, things are a little bit harder to decipher. The only buyers are Turkish “gamblers” who are “playing Borsa Istanbul” under the lockdowns. The foreigners seem determined to run away at any cost.
Former central banker Ugur Gurses thinks the foreign investors are selling
8​ TURKEY Country Report​ June 2020 ​ ​www.intellinews.com