Banking and the corporate sector could access to long term borrowing. Moreover, use of long term capital stood above that of short term capital.

Balance of payments statistics for February were announced yesterday. Current account deficit was quite high in 2010, corresponding to 6.6 percent of the gross domestic product (GDP). Turkey had high current account deficit in the past, too. For instance, in 2006 the ratio of the current account deficit to the GDP was 6.1 percent.

When the effect of the change in the energy prices was removed, Turkey had a record high current account deficit in 2010. But despite this, high current account deficit was not among the fundamental characteristics of Turkey's economy in 2010. One of the most striking developments - maybe the most important one - was the radical change in the method of financing of the current account deficit. In 2006, current account deficit was mainly financed via long term capital inflows. In 2010, however, this was reversed and short term capital became the main source of finance for current account deficit.

Table 1 demonstrates this development in only one aspect; it does not involve the entire short term capital inflow records. Instead, it shows the changes in the net long term and short term credits from abroad borrowed by the banking and the corporate sector and the changes in the deposit accounts of foreign banks and investors in Turkish banks. The data for credits reflect the difference between the new borrowing in 2010 and debt repayment. Any positive value in the table indicates that net capital inflow was observed whereas negative values indicate net capital outflow.

Attention to the rise in deposits in Turkey

Some remarks: The volume of credits used by the banking sector increased substantially in 2010 whereas in 2006 and 2007 the banking sector was net foreign debt payer. Similarly, in 2010 long term borrowing from abroad by the banking sector decreased sharply.

The most evident development considering the corporate sector is that in 2010 the sector was net long term foreign debt payer despite the case in 2006 and 2007. Also, short term credit use increased slightly. Finally, please pay attention to the sharp increase in foreign banks' deposits in Turkish banks in 2010.

Do the statistics for February signify any change in this unfavorable outlook? The outlook is much favorable compared to both the entire year and the first two month of 2010. Banking and the corporate sector could access to long term borrowing. Moreover, use of long term capital stood above that of short term capital and foreign banks' deposits in Turkish banks tended to flow.

Will this trend prevail? It is too soon to decide. 

This commentary was published in Radikal daily on 12.04.2011