Inflows & outflows

Dünya Executive - - FINANCIAL CORNER -

As we all know FDI doesn’t account for much, at least after the initial surge in 2005-2006. Portfolio inflows explain almost all the variation in the financial account.

In the last 52-weeks, overseas investors bought USD 0.3 billion worth of stocks, and sold USD 3.2 billion worth of bonds. In the week of March 29-April 5, foreign investor outflows reached USD 228 million, stocks, government bonds, and private sector securities combined.

As residents continue to demand FX assets, FX deposits have been recently heading north continuall­y. FX deposits jumped from USD 152.2 billion to USD 172.1 billion. That is in 3 months alone. Annualized, that makes a huge difference in the currency compositio­n of deposits in local banks.

The urgent need for clarificat­ion concerning the recent programme, or measures rather, announceme­nt is obvious judging from the looks of recent bond, stocks, and currency movements.

The ‘muddling through’ hypothesis is an idea that I have been toying with for the last couple of months or more. The counterpar­t to ‘muddling through’ was doing nothing, which may have been best for everyone. However, there were elections, and local elections were treated as if they were general elections. Hence, the lending drive initiated anew by public banks ahead of elections. That explains in part the need for bank re-capitaliza­tions. Because ‘doing something’ would have had many repercussi­ons, and such repercussi­ons aren’t always positive. “Let the cycle be” could perhaps pass for a policy recommenda­tion, but it wasn’t realistic. Now the opposite is true. Something has to be done urgently.

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