“Turkey’s Vanishing $8 Billion”
Bloomberg Business, January 29, 2015
“Something bizarre is happening on Turkey’s accounting books, and nobody’s quite sure why. Turkey attracted $7.9 billion of income from unexplained sources during the first eight months of 2014, compared to an outflow of $90 million during the same period a year ago, according to the central bank data. In the three months that followed, $5.6 billion of that left the country. Unexplained flows of foreign funds into and out of the economy — marked as ‘net errors and omissions’ in Turkey’s Balance of Payments report — showed violent swings during the first 11 months of 2014. Outflows in November were estimated to be $3.46 billion, the biggest monthly exodus in more than 16 years, according to central bank data. … Note that it’s not uncommon for countries to have ‘net errors and omissions’ in their balance of payments sheets. What makes Turkey’s ‘puzzling’ is how big these flows are as a ratio to the country’s current account deficit…. The gap matters because economists use that to gauge how vulnerable Turkey’s economy is to sudden changes in global financial markets. And while fresh capital — any capital — helps in a country that desperately needs it, the fact that no one knows where some of that is coming from makes it especially difficult to predict when it will disappear. That’s exactly what happened in the latter months of 2014.”
Quickie Analysis: While there is some speculation that the mysterious money coming into Turkey may be capital fleeing Iraq and Syria, not knowing where it’s coming from, when it might suddenly stop coming, and when it might leave again exposes Turkey to unexpected and potentially destabilizing shortfalls in capital.