Emerging Markets

A -post collection

The Turkish Sudden Stop

The plunge in the Turkish Lira attributed to a tweet and a defiant speech. But underneath there was a “sudden stop” in the Turkish currency. In 1997 this happened in Indonesia that went from a darling in the eyes of foreign lenders to a nightmare. The rupiah crashed and Indonesia’s debt to GDP soared to 170 percent. Capital flows to Indonesia ‘stopped’ leaving financial markets in disarray. What followed next was contagion spreading across the South East Asia region. A key reason for contagion is debt denominated in foreign currency. When confidence of foreign lenders shaken, capital flight leads to a currency plunge. Loans in local currency fall in value and impact balance sheets of foreign lenders. As a result, foreign direct investment collapses. In

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