The seasonal component of both the current account and the trade balance is apparent from
figure 1. It is also evident that deficit periods outweigh surpluses. The graph reveals the high
current account and trade deficits facing Turkey prior to the crises of 1994 and 2001. The crises
periods (1994 and 2001) which resulted in capital outflows led to current account surpluses which
are visible from the graph. We also observe a current account surplus in 1998 which may be a
contagion effect related to the East Asian financial crisis and the Russian ruble crisis.
The current account and trade deficit increased significantly in 1993 and again in 2000
(period prior to the crises). The annual current account deficits in these periods were
approximately $ 6.4 billion and $ 9.8 billion while the annual trade deficits exceeded the current
account deficits at $ 7.3 billion and $ 10.6 billion for 1993 and 2000 respectively. From the graph
it is obvious that the trade balance mimics the current account balance and indicates that the trade
balance is the most important component and the driving force of the current account balance.
It is noteworthy to mention that even though deficits (both current account deficit and trade
deficit) prior to the crises were high, they were not nearly as high as the deficits in 2004 and have
continued to increase in 2005. Since Turkey did not suffer a financial crisis in 2005 despite an
annual current account deficit of over $ 15 billion, it may be indicative of changed fundamentals
in Turkey which can sustain such a high deficit. We explore this issue in the paper.
What is particularly interesting about the trend in figure 1 is that the trade deficit was either
equal to the current account deficit or exceeded it prior to 2001. Also, in surplus periods, we can
see that the trade surplus was lower than the current account surplus. Since 2001 we are seeing a
reversal of this trend. Trade surpluses now exceed the current account surplus and the trade
deficit is lower than the current account deficit. This indicates a changing impact of the different
components of the current account. Figure 2 graphs the other components of the current account
namely investment income and unilateral transfer accounts.