bne IntelliNews – ISTANBUL BLOG: The $24 Billion Turkish Question

If Turkish Finance Minister Nureddin Nebati found $24.4 billion in his couch, he won’t say.

This week, social media in Turkey has been buzzing with speculation about where Turkey got the mysterious sum to help fund its chronic current account deficit.

After the FinancialTimes took a look at the question, asking in its headline “Who’s Stuffing Turkey?”, Nebati on September 15 took to Twitter to answer the question. But he didn’t answer the question. Instead, Nebati baffled the curious with an article entitled: “Investment in Turkey’s economic model: production, employment, exports, growth”.

This is of course not the first time that Nebati denigrated as ‘Comet Nebati’ and known for confusing markets amid Turkey’s economic carnage indulged in such gibberish. In January last year, when asked by a television interviewer to provide details of an initiative to stem the collapse of the Turkish lira, Nebati replied: I won’t give a figure now. Can you look me in the eyes? What do you see?… The economy is the sparkle in the eye.”

The curious $24.4 billion was listed in current account data from January through July under account discrepancies known as net errors and omissions, or NEOs. These unexplained cash flows can sometimes be explained once foreign counterparts clean up their own data. This number alone is far too large to discount this explanation (total NEO for the same period last year was just $10.2 billion).

Tourism revenue, while quite buoyant for Turkey this year at $16.4 billion for 7M22, cannot account for the puzzling sum either.

Liam Peach of Capital Economics told the FT that the heavy NEO component might have resulted from misrecorded capital flows, reflecting everything from selling gold to depositing currency to misrecording trade in services or smuggling, but it doesn’t was not possible to know with certainty.

“It’s hard to know exactly what’s going on, but it’s clearly provided key support for the current account deficit this year, and if these unexplained flows reverse, it will put the low reserve coverage of Turkey,” Peach said. .

BlueBay Asset Management’s Timothy Ash asked if it could be that Turkish banks are quite happy to accept money out of sanctioned Russia. The US and the EU are expected to carefully consider this issue.

Such bank inflows could bolster the current account, which posted a deficit of $36.7 billion in the year to the end of July, and help the central bank prevent the beleaguered Turkish lira from plunging again.

Scratch your head, reach for the powers of deduction and you might remember how, in October last year, the Paris-based Financial Action Task Force (FATF) set up by the G7 group of advanced economies to defend the global financial system against money laundering and terrorist financing placed Turkey on its “grey list”.

The international watchdog concluded that Turkey was failing to tackle both money laundering and terrorist financing.

Turkey, the biggest country to be downgraded in the announced review, needed to address ‘serious supervision issues’ in its banking and real estate sectors, and with gold and gem traders, FATF chairman says , Marcus Pleyer, during a press conference.

Interesting.

bne IntelliNewsby the way, has already taken this dark road.

In June last year, this publication focused on Turkey’s latest “wealth amnesty” law, introduced eight months ago.

The law allows individuals and businesses to repatriate cash, gold, currency, securities and other previously undisclosed assets held abroad, or report assets held in Turkey, without making facing no questioning about the source of their assets or incurring any tax penalties.

Previous versions of the law imposed a small tax penalty on disclosed assets. The last law did not apply any levy.

The assets, he said, could even be transported into the country in a suitcase and declared without any subsequent inquiry being made as to their origin.

“Since money laundering requires committing other crimes such as drugs, terrorism, etc., and waiting for an opportunity to enter the system to be cleared, this risk is significant,” said Transparency International Turkey President Oya Ozarslan told Aljazeera.

“Today, if someone comes to the border and claims to have brought 30 million euros, all they have to do is fill in a form for the public prosecutor and the commission of inquiry into financial crime. [MASAK]Nedim Turkmen from Galatasaray University told the outlet.

“We don’t know how much wealth has been legalized as a result of recent amnesties and regulations,” Republican People’s Party (CHP) MP Erdogan Toprak told Aljazeera. “How much silver, gold, jewelry and other valuables have been brought into the country? The total value of the assets is no longer publicly available.

All the way back in 2016a Deutsche Bank report titled “Dark Matter: The Hidden Capital Flows Driving G10 Exchange Rates” noted large financial inflows into Turkey under the heading of net errors and omissions.

The government addressed the problem of these capital flows in 2019 by revising its balance of payments methodology. There was then no eye-catching influx under NEO. The receipts have been transferred retrospectively to service income.

Turkey has long seen heroin crossing its borders from Afghanistan to Europe, along with people and weapons. Billions of dollars from illegal businesses in these regions often end up in offshore accounts. Critics suspect that some of them end up in Turkey via the country’s wealth amnesties.

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