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Crisis-hit Turkey risks disastrous foreign investor flight

Erdogan’s interference with the central bank is badly damaging foreign investor confidence in Turkey, threatening hard-currency crunches that could send the Turkish lira to new lows.
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The turbulence rattling Turkey’s financial markets since the shocking removal of the central bank governor March 20 has caused significant losses for foreign investors, threatening to further scare them away at a time when Turkey badly needs inflows of foreign funds to stabilize its nosediving currency.

In the week prior to the turmoil, foreigners had put about $500 million in fresh investments in Turkish stock shares and treasury bonds, according to central bank data, while another $1.3 billion in “hot money” came from currency swaps between foreign and Turkish banks. The foreign investor portfolios totaled $70.7 billion, including $28.9 billion invested in stock shares, $10.2 billion in government and private-sector bonds and $31.6 billion in bank deposits. The swaps, meanwhile, were estimated to have reached $24 billion. In sum, foreign “hot money” in Turkey totaled nearly $95 billion when President Recep Tayyip Erdogan fired central bank governor Naci Agbal with an abrupt overnight decree, less than five months after appointing him to the post in a bid to curb a mounting trend of dollarization in the country.

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