Brad Setser Profile picture
Jan 11, 2023 10 tweets 4 min read Read on X
Turkey looked to be heading toward trouble in the summer of 2022: it was selling reserves to cover a growing current account deficit.

But Erdogan pulled a rabbit or two out of the hat in the H2 2022; reserves are now rising even with the persistent external deficit.

1/x
To be sure, Turkey's balance of payments doesn't look healthy --

There hasn't been any real demand for Turkey's government debt for a while (especially the TL bonds, but recent FX issue largely offset earlier maturities)

2/
And the banks understandable don't want to rollover costly long-term (often 1 year + 1 day) loans -- they have more domestic deposits than they need in any case.

3/
So the current account deficit hasn't been financed by relatively more stable long-term flows --

4/
Rather the bulk of the inflow -- setting "errors" aside -- has come from potentially risky short-term deposits (and a reduction in the banks' external liquidity buffer, which is part of the "net" deposit flow)

5/
Zooming in a bit, the recent rebound in reserves has mostly come from:

-- the Rosatom loan (the yellow bar)
-- CBRT swaps + cross border deposits (from geopolitical friends of Turkey)
-- renewed Eurobond issuance (some likely to Turkish banks)

6/
But the CBRT's reserves have been increasing faster than its external debt -- there isn't any imminent risk that Turkey is going to run out.

(of course, having $70b in reserves/ $20b in illiquid currencies isn't great if you have $30b or so in external debt)

7/
The November reverse increase though was a bit bigger than can be explained by the eurobond issue.

As this chart illustrates Turkey's banks also ran down their stock of offshore deposits (more than covering external debt repayment)

(Chart sums flows to infer stocks)

8/
Turkey still isn't in a great place. I wouldn't want to manage an economy when the central banks net fx position is negative by any measure. And the end December reserves dipped a bit.

But Ergogan's geo-financial strategy has bought Turkey a bit of time.

9/9
p.s. the chart above nets out illiquid reserves from the swaps with Qatar and the UAE to try to estimate liquid reserve assets. I also netted out the PBOC swap as I am not sure that the CBRT's CNY are usable, but I don't have a strong view on that specific adjustment.

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Brad Setser

Brad Setser Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @Brad_Setser

Jul 7
A quick thread highlighting the (many) puzzle's in China's balance of payments data --

The first, of course, is why did errors (now the statistical discrepancy)/ hot money flows disappear with the property bubble? (my answer is that they didn't really)

1/ Image
A related puzzle: why did hot money outflows (errors) fall off the cliff at the same time as FDI inflows? (my answer is that they didn't really, but it is a puzzle)

2/ Image
A related puzzle -- why did fx inflows (from the current account, portfolio inflows & FDI) disappear from q2 22 to q4 24 and then bounce back so strongly?

3/ Image
Read 13 tweets
Jul 6
A bit of work in progress. The net foreign assets of China's state commercial banks doesn't include the net foreign assets of the policy banks. So I converted net "other" in the BoP into a monthly series, and plotted it against net foreign assets.

Good fit

1/ Image
The gap between the cumulative flows since 2010 in the two series (mostly from 2014 to 2018) implies ~ $1 trillion in net foreign assets in the policy banks, consistent with the work of @AidData

Note this is an upper bound estimate in some ways.

2/ Image
@AidData Throat clearing: net other is defined as net loans, net deposits and net trade credits, and then I added portfolio debt assets b/c the state banks hold a lot of foreign bonds (including all of the bonds makes it an upper bound estimate)

3/
Read 4 tweets
Jul 3
So much winning --

(By big Pharma)

US imports of pharmaceuticals from the world's low tax jurisdictions have more than tripled since the (Pharma) Tax Cuts and (Irish) Jobs Act was passed ...

1/ Image
The US trade deficit in pharmaceuticals has gone from $50b to around $200b (close to 0.7 pp of US GDP)

2/ Image
Imports now top $300b

3/ Image
Read 5 tweets
Jul 2
I liked Trump's term one trade policy a lot better than Trump's current trade policy.

Back then, the bulk of the tariff increase was on goods from China.

Now, not so much

1/ Image
Gearing up for the May trade data release

In April, tariff revenue was around $20b, equally split between China and the rest of the world.

During Trump's first term the increase in monthly tariff revenue (to $5/6b) was essentially from tariffs on China going from $1b to $4b

2/ Image
Tariff revenue from countries other than China, for future reference ...

Taiwan so far has gotten off relatively lightly, largely b/c of the semiconductor exclusion from the reciprocal/ base tariffs (expected future 232 sector)

3/ Image
Read 4 tweets
Jun 30
Sure seems like the world woke up to the fact that it was enormously overweight US assets (and thus the dollar) on "Liberation" day.

1/
Foreign demand for US bonds was a bit too strong in 2023 and 2024; it has pushed the dollar up to untenable levels.

But there is a some risk of a real reversal now

2/ Image
Not sure that Trump's comments over the weekend about the future path of US rates (and issuing bills until he installs a compliant Fed chair) will increase global appetite for US bonds

3/ Image
Read 7 tweets
Jun 30
Just a reminder that Saudi Arabia runs a current account deficit these days -- and its break even oil price (for the balance of payments) is around $90 a barrel ...

1/ Image
The latest balance of payments data only runs though q1 -- but the difference between the oil price and Saudi's breakeven implies a much larger deficit in q2 than in the past few quarters

2/ Image
Saudi external asset accumulation over the last 4 quarters has been financed by debt, not out of its oil proceeds

3/ Image
Read 6 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us!

:(