January 15, 2019 / 6:37 PM / a year ago

Turkey, Argentina current acct rebalancing to be done in 6 months -IIF

LONDON, Jan 15 (Reuters) - Turkey and Argentina are expected to complete rebalancing their current accounts in the wake of last year’s sharp currency depreciations within six months, the Institute of International Finance said on Tuesday.

However, both countries face continued outflows from foreign investors and debt rollover rates that are bound to stay low through the rest of the year, according to an IIF report.

Both countries were engulfed in crisis in 2018, when their currencies tumbled against the dollar and roiled emerging markets around the globe. Argentina was forced to seek support from the International Monetary Fund.

The IIF forecast that the current account adjustments in the second half of 2018 would continue into the first half of 2019.

“The rapid import and domestic demand compression we are seeing in Turkey and Argentina mirrors the pattern of other EMs that experienced sharp real depreciations,” the IIF said.

“In past cases, import and current account adjustments were all but completed in just two quarters — a pattern we think will also emerge in the cases of Turkey and Argentina.”

Foreign investors would continue to pull out, predicted the IIF.

In Argentina, an augmented IMF package should be enough to plug the gap of outflows from government debt and smaller, but persistent, domestic capital flight, the IIF predicted.

“In Turkey, the ongoing domestic credit crunch will translate into repayment of foreign liabilities by banks,” the report said.

“Key debt rollover rates (public in Argentina, banks in Turkey) fell well below 100 percent mid-last year and will remain low through 2019,” it added. (Reporting by Karin Strohecker; Editing by Richard Chang)

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