“Turkey’s Kriz (A): Deteriorating Balance of Payments” Case Study Questions 1. Where in the Current Account would the imported telecommunications equipment be listed? Would this correspond to the increase in magnitude and timing of the Financial Account?
The imported telecommunications equipment would be listed in the Current Account as an imported of good. The other vendors that sold the equipment would be includee in the net other investment. This would correspond to the increase in net other investment so the Financial Account would have a large negative balance in 2000.
2. Why do you think that net direct investment declined from $571 million in 1998 to $112 million in 2000?
I think that the decline was caused because the lack of confidence in Turkey's long-term growth prediction and political reliability. High interest rates were inforced during the 1999 and 2000 years because Turkey was dealing with financail issues with its own inflation. The country wanted to slow down the rate of growth because it would reduced expected returns and direct investment inflows.
3. Why do you think that TelSim defaulted on its payments for equipment imports from Nokia and Motorola?
TelSim defaulted on its payments for equipment imports because they thought of short-term trade financing instead of long-term financing. It takes some time for the program to develope and then become successful. They needed to invest in captial equipment to obtain the best network, but takes a long time to create it. In addition the telecommunication industry is very competitive with price because the companies revenue is based on variable costs not fixed capital costs. It is also said that the Uzan family never did have the intentions on paying.
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