Question

Turkey is a surprising addition to the list of rapidly developing economies; with a GDP increase of 8.5% in the year 2011 alone. However, such rapid growth leaves worries regarding possible side-effects. For instance, in 2011 Turkey's rate of inflation was well above that of its peers. Secondly, there is increasing concern regarding Turkey's growing dependency on foreign capital. A large portion of the Turkish banking system is part-owned by banks within the Eurozone. As the single currency falters, such a dependency raises questions about the stability of Turkish growth.

The Turkish banks are part-owned by European banks as this provides greater variation to the market and extra finance to the economy.
A.True
B.Probably True
C.More Information Required
D.Probably False
E.False

Answer 1

Turkey's rapid economic growth comes with concerns such as high inflation, dependency on foreign capital, exchange rate vulnerabilities, and the history of defaults. These factors jeopardize the country's stability and may lead to decreased investor confidence and potential economic crises.

Step-by-step explanation:

Turkey's rapid GDP growth in 2011, marked at 8.5%, has raised concerns about its economic stability due to several factors. High inflation and the country's reliance on foreign capital, particularly from banks in the Eurozone, suggest vulnerability to international market fluctuations.

A critical part of this vulnerability stems from how Turkish banks borrow money. They take loans in foreign currencies such as U.S. dollars or euros, convert them to Turkish Lira, and then loan them out domestically. Should the exchange rate of the lira depreciate significantly, these banks face difficulties in repaying their international loans, leading to possible bank failures and economic crises. Additionally, Turkey's history of high inflation, related to large budget deficits, and instances of defaulting on its debts amplify concerns about the sustainability of its economic growth and the potential adverse effects on the international investors' returns.