The Turkish Economy and the Development of its Financial Sector
$9bn. poured into the country, countering the outflow of capital. However, when we look at the net errors and omissions figure, until May in 2011 the amount reached $4.5 bn (CBRT, 2011). The nature of these inflowing funds are short-term, their origins are unknown and can be highly destabilizing for Turkish banks. Government debt has been halved in comparison to 2001, while the private sector shoulders the burden of foreign debt. The central bank foreign currency reserves are in the region of $100 bn. and the balance of payments deficit is progressively declining. In order to prevent an over-heating of the economy, the Central Bank introduced reserve requirements and gradually devalued the Turkish currency. Banks’ credit expansion is funded by borrowing from the Central Bank as can be seen from Table 4 below.
Table 4: Direct Loans of the CBRT to the Banking Sector, (CBRT)
Additionally, recession within the European Union, the destination for most of the Turkish exports, is also a cause of concern for the banks. Turkish exports came to a halt at the start of 2009 despite depreciating the TL. The government and the central bank have been criticized openly for not being prepared sufficiently and for failing to take the necessary precautions to offset the dynamics of crisis sooner. The monetary authority’s response to the crisis has been discomforting since it increased liquidity while simul38
SEDAT AYBAR