The Relationships Between Exchange Rate, Financial Crises, and Foreign Capital Investments in the Turkish Economy

  

The main reason for countries to liberalize their capital accounts is to achieve economic growth. However, in case of failure of economic policies, hot capital investments such as portfolio investments become difficult to control. Because of this, due to the rapid mobility of foreign investors with hot capital, these capitals can move suddenly. Thus, when the movement speed of hot capital is added to the wrong implementation of economic policies, in case of a shock in the economy, these capitals can leave the country with a sudden movement and cause financial crises. For this reason, the benefits and losses of foreign capital flows should be investigated and necessary measures should be taken. Thus, together with financial liberalization of hot capital movements in and out suddenly exposed in Turkey, the balance of foreign currency distorted and rather dragged into a structure having weak economy further it said that shake the Turkish economy entered into crisis. In this case, Turkey has been exposed to a severe financial crisis, together because domestic and foreign investors who are aware of this situation, have leaved from Turkey. For example, the first step in economic liberalization was the decisions of January 24, 1980. Access barriers to capital were eased. The foreign exchange market was established in 1988. Turkey lifted its exchange controls. Thus, Turkey has increased the volume of foreign trade and capital flows. Capital movements increased in both volume and diversity. Especially in short-term investments and portfolio investments, huge increases were observed in capital inflows. Overall it was rarely decreased foreign capital in Turkey tended to increase. In 1991, the Gulf crisis in 1994, Turkey's economic crisis in 1998, the Asian and Russian crises and November 2000 and there were times that seen in the Turkish capital outflows as the financial crisis in February 2001. In 1991, capital outflows were $ 2.5 billion and $ 4.3 billion. Capital outflows under the effect of the global financial crisis were $ 12 billion in 2008. Thus, the negative effects arising from the liberalization seen in most of the world appeared in Turkey. Short-term and volatile capital inflows, has led Turkey to be sensitive to external shocks. Another point, the period between 1990 and 2000, when it was increased Turkey's debt. The budget deficit of the public sector has increased rapidly. The Turkish government, which aims to close this gap, has implemented domestic and foreign borrowing and central bank resources. Until the crisis in 1994, foreign exchange reserves melted rapidly. For the first time in 1994, a large amount of domestic borrowing was required to pay foreign debt. When the idea of getting rid of these debts by printing money was put forward, TL lost excessive value in capital inflows. Anti-inflation policies were not successful because debt and financial deficit could not be controlled. The lira depreciated in exchange rates. Foreign exchange demand increased and foreign exchange reserves decreased to the lowest levels. Thus, Turkey's economy towards 2001, for failing to manage the relationship between the exchange rate and foreign investment, has prepared the ground for the financial crisis. As a result, it can be said that foreign investors with hot capital have suddenly left the country with their rapid mobility due to the wrong implementation of the policies and caused financial crises. 

Çağatay Çağlayan