“Sudden Stop” (sudden stop) has been defined as a crisis process mainly for developing countries.) “Sudden Stop”In the first stage, it refers to a sudden slowdown, stoppage or regression of capital flows to the country due to external reasons such as contraction in global liquidity conditions or internal reasons such as increased economic risks and policies of the country. In the second stage, it predicts a sudden decrease in production and consumption, a contraction in spending and credit, an excessive depreciation of the national currency and increases in interest.


The fact that the issue of “sudden stop” has entered the agenda at the point where we are today is due to the emergence of internal and external conditions that increase risk.

The contraction in global liquidity and the rise in interest rates are taking place abroad. In Turkey, on the other hand, the exchange rate cannot be sustained with the policy rate cuts that started in September 2021. To date, the Central Bank’s net reserves, including gold, have fallen to 6, $56 billion, while net international reserves excluding swaps fell to minus $54.9 billion.

Turkey’s international credit risk (insurance) premium reached 900 basis points. This means that Turkey will be able to borrow on the international markets in dollars with an interest rate of at least 11%. Turkey’s stock of short-term external debt and current account deficit are increasing. Moreover, outflows of foreign capital from Turkey continue. Not to mention direct investment, we note that foreigners have made an exit of 5.6 billion dollars from the stock and bond markets since the beginning of the year.

As can be understood, the first determinant of the definition of a sudden stop, the slowdown or even the cessation of capital inflows has become valid for Turkey.

However, we observe the following: The reversal of capital flows in Turkey has not stopped the economy. There are several important reasons for this: First, the high degree of openness of the Turkish economy has been a factor reducing the risk of a sudden stop. The second concerns Turkey’s tourism receipts. Third, one can account for currency inflows with the patrimonial peace or currency inflows under net errors and omissions that cannot be explained in the Central Bank balance sheet.


“Sudden Stop” The part of the definition relating to capital movements has been carried out, but there is a problem in the Turkish economy. “sudden stop” This does not happen. So why am I dwelling on this concept anyway? Because, for the Turkish economy, “sudden stop” The risk that production, investment, consumption and the credits included in the definition stop or even decline becomes more evident.

Even with the TUIK data, the second half of the year does not look bright: in the industrial sector, a weakening has started on the production side. Manufacturers complain that they cannot create costs due to uncertainties and therefore cannot give prices. On the other hand, these developments increase the need for working capital and the credit mechanism, which should help in this process, has started to operate slowly. In addition, the financial costs increase. Manufacturers, who think that it will not be possible to produce under the same conditions at the end of the production cycle, want to turn to on-demand sales. If they can’t do that, they can quit production.

On the other hand, domestic demand contracted except in a few sectors. Stability is only in question for export markets. If there is no export, it is difficult to produce. Development that should reduce the risk of a sudden stop is defined as either increasing exports or reducing imports. However, in the case of Turkey, increasing exports is possible by increasing imports. Therefore, this mechanism does not work. On the other hand, there is a danger of recession everywhere in the world, especially in the European market.

In autos, real estate and similar assets that investors have shown interest so far, prices can be expected to stall and pull back assuming new investors do not come in. will not produce. This collapse in asset prices can lead to bankruptcies and a contraction of the economy. In this case, the value of the loan collateral is greatly reduced, which puts the financial system in a serious bottleneck.

When all of these developments are weighed with the uncertainties created by high inflation, currency scarcity, exchange rate and interest rate expectations, in the near future. “sudden stop” indicates that there is a risk. How can it be avoided, highlights downsizing, more capital controls and interventions.

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