It is said nowadays, that a good number of hedge funds will start to flow from developing countries. In the early 2000s and long before the 2008 financial crisis, interest rates started to plummet in developed countries.
Indeed, the U.S.'s 1985 Plaza Accord was a measure taken against the current crisis faced by developed countries. Accordingly, the U.S. pledged to close its growing budget deficits, Japan promised to loosen its monetary policy and launch financial reforms, and Germany pledged to carry out reforms in its tax system. However, none of these were achieved. The appreciating Deutsche mark and Japanese yen left European and Japanese economies in the lurch, while the falling dollar failed to remedy the U.S.'s budget deficits. Quite the contrary, the U.S. economy's need for financing further increased because of the challenged European economy and the declining demand for the dollar. Actually, the Plaza Accord was an opportunity for the world economy that was experiencing a crisis; however, developed countries did not fulfill the promises. As such, the old order returned with the introduction of the Reverse Plaza Accord in 1995. In short, the world returned to the irrational monetary system that was based on an overvalued dollar, paving the way for the current crisis. The U.S. closed its deficits with the overvalued dollar, Japan rapidly brought down interest rates and the EU was dragged into a crisis because of high debt. There were efforts to resolve the 2008 crisis through increasing balance sheets in the central banks of developed countries, and the U.S. Federal Reserve in particular. Interest rates dropped and the profits of financial capitals melted away in parallel with this. Here, large hedge funds and banks discovered developing countries once more and funds of billions of dollars started to move away from the west to the east and south.
Hedge funds and banks achieved very high yields within this period. The capital that flowed into developing countries, including Turkey, made local currencies valuable and prioritized an import-based economy in these countries. Actually, this was a trap that caused such countries to borrow more.
Now, it is said falling commodity prices make countries such as Brazil and Russia risky for investors and a political risk starts to prevail in Turkey. As such, there are rumors that the funds that have flowed to developing countries since 2002 will exit these countries, leading to a crisis. These funds and banks might considerably reduce their influence in developing countries or might completely withdraw. However, it is questionable how this change will affect the economic potential and development paths of developing countries in the medium and long term.
Foreign funds and banks benefited from the middle class-based and consumption-driven growth that rose with the Justice and Development Party (AK Party) rule in Turkey. Since 2008, Turkey has been in a major quest for a crossroads. Here, as the production-oriented economic path that President Recep Tayyip Erdoğan wants comes to the fore, consumption-driven rent economy will decline and hedge funds, which are superficial financial market hunters, will fall short of their goals. From my standpoint, the fact that such funds do not prefer countries like Turkey will not create a disadvantage for developing countries but an advantage for them in the medium and long term. This is because developing countries will highlight an economy cycle that is based on their equity capitals rather than on foreign funds, which are like opium. They will also encourage their banking systems to finance the real economy. So, a more outward-oriented and competitive economy will come to the fore in developing countries including Turkey. But, have these funds and banks, which are said to exit developing countries, made any major investments and established common funds in the sectors that would pave the way for an inclusive path of growth and development in these countries? It is no longer possible to make progress with a development path that does not highlight strategic high-added-value areas such as defense industry education, aircraft, space technology and medicine.
If Turkey cannot switch to a new, research and development (R&D)-oriented growth that will prioritize new, inclusive, competitive and strategic sectors starting from the financial system and covering all economic areas after the Nov. 1 general elections, it will become a country that fears the withdrawal of Ponzi-style banks and funds from the country. Then, the arguments that their withdrawal will lead to a crisis in Turkey will have turned out to be right.
On the other hand, in 2016 Turkey and other developing countries will not face a financial crisis risk that is reminiscent of those in the 1990s, including the Fed's interest rate hike. There seems to be no risk of financial crisis, particularly for countries that pursue a free exchange rate system and have controllable public debts. In fact, quite the contrary, as such countries will carry out major reforms and further improve investment environments as of 2016.