SAİT ŞENER
Balance of Payment
It measures flow of goods, services and capital taking place over a period of time (usually one
year). It is divided into 3 categories:
Current Account: The value of visible and invisible trade accounts
a. Goods – Visible Trade
b. Services – Invisible Trade
Capital Account: Short-term or long-term investment transactions, such as stocks
and investments.
Reserves : Is part of capital account that are assets, available for use by an
economy’s central authorities in meeting balance of payments needs (gold, special
drawing rights, government funds in other countries, reserves positions in the IMF etc. ).
When all information from individual categories do not balance and shows differences, to
obtain the balance of debits and credits, an entry is made that is called “net errors and
omissions”. It is a problem if it exceeds 5% of the gross credit and debit entries for
merchandising combined.
If you put all these factors together you have the Balance of Payments
More out than in = Surplus
More in than out = Deficit
Debits
Visible Imports
Invisible Imports
Credits
Visible Exports
Invisible Exports
Balance
+/-
Types of Balances
The balance of goods and services
The trade balance (goods exports and imports)
The current account balance (goods and services transfers)
The basic balance (goods + services+ transfers+ long tern capital “exclude short term
capital movement”)
The official settlement balance (all standard components except reserves)
The long run effect of a deficit is that; if not corrected, the country will eventually have no
means to pay for imports and international debts.
The deficit can be financed by borrowing from the IMF, postponing payments, encouraging
exports, discouraging imports (quotas, tariffs) devaluation, liberalizing investment rules, tax
reductions, encouraging foreigners to invest in the country, etc.
The USA covers its deficit by encouraging foreigners to hold dollars and invest in the USA.
1
Domestic Policies: Sometimes a country’s balance of payments problems develop from
domestic activities, such a budget deficit. When the government spends more than it
earns, it creates inflation. If such country tries to maintain fixed exchange rate or
devaluing its currency less than inflation (hot money policy in Turkey), the imports
become cheaper and exports become more expensive. Gradually the decline in exports and
growth in imports cause payment crises for that country (Turkey). Hot Money Policy +
Capital Flight.
BALANCE OF PAYMENT, TURKİSH CASE
2