Bank of Japan: “High risk of currency crisis in Turkey”

Nomura Bank of Japan announced that the risk of a currency crisis was high in seven emerging economies, including Turkey. Nomura noted that there was a risk of a currency crisis in Turkey, Egypt, Romania, Sri Lanka, the Czech Republic, Pakistan and Hungary.

The bank’s warning system is based on eight indicators.

Nomura reported that the risks 22 of the 32 countries in the ’Damocles’ risk warning system were exposed to had increased since May.

HARBINGER OF DISASTER

The total risk score of the 32 countries in the risk calculation model increased to 2,234 from 1,744 in May. Nomura economists described this total score as a “harbinger of a disaster” for developing countries. “This is the highest total score seen since June 1999, and not far from the peak of 2,692 seen during the period when the Asian crisis was most severely felt,” the bank’s report said.

61 DIFFERENT CRISES WERE ADDRESSED

The risk warning system called “Damocles” is based on eight indicators related to the foreign exchange reserves of countries, the exchange rate, their financial outlook and interest rates.

Nomura, based on data from 61 different currency crises in developing countries since 1996, gives a 64 percent probability that a currency crisis will occur within 12 months in countries with a score over 100.

TURKEY SCORES 138, A SCORE OVER 100

Turkey and Sri Lanka’s score was announced as 138, while the highest score was Egypt’s with 165. Egypt’s currency has depreciated sharply twice this year, and the government has applied to the International Monetary Fund (IMF) program.

Nomura’s risk account for the G7 countries also scored above the 100 threshold, each of them except Japan, while the highest scores were the United States and the United Kingdom.