Count the costs of the defense failure to read it

PRED POLICE operations in Turkey are not new, but some still raise eyebrows. On April 13, under cover of darkness, police officers across the country shot down giant banners that hung from the offices of Turkey’s main opposition party, the Republican People’s Party (Cogeneration). “Where is the $ 128 billion?” the offending signs can be read.

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The $ 128 billion represents the amount of foreign exchange reserves that bankers and analysts believe has been squandered by Turkey’s central bank in its attempt to bolster the lira over the past two years. (Full official figures are not released.) The government, led by Recep Tayyip Erdogan, has little to show for this policy, which is believed to be led by the son-in-law of former finance minister Mr Erdogan. Since the start of 2019, when interventions began, the lira has lost more than 35% against the dollar, as a result of inflation, low real interest rates and a series of political crises. .

Prosecutors ordered the banners removed, claiming they had insulted the president, a felony punishable by four years in prison. An official said they violated covid-19 restrictions. But all of this only added to the controversy. “Where is the $ 128 billion?” enlightened social media. On April 21, Erdogan admitted that the central bank had used its reserves to defend the lira, that it could do it again if necessary, and that the amount spent, including some other items, was in fact 165 billion. of dollars. The markets were shaking.

The money has not disappeared. To relieve pressure on the currency, the central bank exchanged some of its dollars for lira through state banks. But it came at huge costs. Taking into account the depreciation of the lira over time, the transactions generated losses of around 250 billion pounds ($ 30 billion), or 4% of GDP, calculates Kerim Rota, former banker and member of a new opposition party. This raises several questions, he says: “Why did they start such a stupid process, why was it not transparent, and who ordered the banks to sell currencies and at what rates?” The government has not provided convincing answers.

With its eroded reserves, the central bank might not be able to defend the lira any longer. And the currency is under pressure again. After a good start to the year, the lira resumed its descent after Mr Erdogan sacked the former central bank governor, a respected political hawk, and replaced him with Sahap Kavcioglu, a rate critic. high interest.

The former governor is said to have found himself under Mr Erdogan’s skin after ordering an internal investigation into the central bank’s dollar sales. His successor defended the policy, saying it prevented further depreciation from reading it. Mr Kavcioglu was already due to cut rates in the second half of the year. Mr Erdogan can count on him to do it even sooner to compensate for the damage done to the economy by the pandemic. After a record spike in cases, the government announced a three-week lockdown starting April 29.

The decline in the lira has eaten away at the purchasing power of Turks, forcing many to turn to the greenback. (Turkish residents keep more of their savings in dollars than in lire.) But lack of confidence in the country’s financial management has had other effects, including a boom in cryptocurrency trading. Between the beginning of February and March 24, trade volumes in Turkey reached 218 billion pounds, up 3,000% from the same period last year, according to Reuters. The incumbents suffered a double shock. The first came when the central bank banned the use of cryptocurrencies as a means of payment. The second was the collapse of two Turkish crypto exchanges in a single week. One of their founders is believed to have fled to Albania with $ 2 billion in investor assets. They too will ask where their money went.

This article appeared in the Finance & Economics section of the print edition under the title “Money for Nothing”


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About Louis Miller

Louis Miller

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