The Turks are chasing billions that are missing in foreign exchange reserves

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When a flood of placards and banners bearing the number 128 appeared this month, police rushed to demolish them, arguing that they insulted President Recep Tayyip Erdogan, a crime in Turkey.

“Where’s the $ 128 billion?” he asked the Republican Opposition People’s Party (CHP) for banners hanging from its offices across Turkey, referring to the money it says the central bank has used to consolidate the lira in recent years. Estimates vary widely on the amount invested and Erdogan on Wednesday put the figure at $ 165 billion, the highest valuation to date.

The opposition and other analysts say the confusion illustrates Erdogan’s lack of transparency and poor governance at the heart of economic policy, which has been widely criticized for failing to curb inflation and halt the lira’s depreciation.

“Everything we ask ourselves is a question, but the reaction makes clear even what is not allowed,” said Gokce Gokcen, CHP’s deputy vice president for youth affairs. “The $ 128 billion represents a very basic problem in governance in Turkey, where the administration lacks transparency and trust. We don’t know if the money was exhausted to fix the currency, to whom it was sold, if it left Turkey or if there were benefits, ”he added.

For many Turks, the exchange rate is a barometer of economic success and Ankara deployed its reserves (the foreign assets that a central bank has to offset a nation’s liabilities) before the 2019 elections and the 2020 during the pandemic in an effort to shore up. the lyre. It still fell 37% against the dollar during the 18-month period to November 2020.

Critics accuse the bank of disguising the amount it sold by avoiding public debt auctions, not publishing data on interventions and showing swaps or borrowed funds as assets on its balance sheet. The central bank governor said the data was shared in accordance with international standards “in an extremely transparent manner”. A spokesman declined to comment.

Erdogan on Wednesday criticized the CHP’s accusations as “hullabaloo” and “betrayal” aimed at scaring foreign investors. International reserves are now approaching $ 90 billion and “can be used when needed,” he told party members. Goldman Sachs estimates the central bank has negative net foreign assets of $ 60 billion.

Recep Tayyip Erdogan, President of Turkey. Opposition says lack of transparency at the heart of its economic policy © Adem Altan / AFP via Getty Images

Erdogan also offered an account of spending for the first time, saying $ 165 billion was used in the past two years “when Turkey faced unprecedented foreign exchange demand” to fund the current account deficit, the portfolio outflows, denominated loans and demand for gold and foreign exchange from citizens.

Erdogan, self-proclaimed “enemy of interest rates,” had effectively banned policymakers at the time from raising rates to curb double-digit inflation, leaving them with few options to prevent the lira from depreciating.

Erdogan in March fired the third central governor in less than two years after raising rates more than expected and installed Sahap Kavcioglu, an academic who had advocated the use of the country’s reserves. his newspaper column. The shock further eroded the independence of the central bank and triggered more market turmoil.

“The president’s fundamental view on interest rates determines central bank policy and political influence was behind the scale of destruction of reserves,” said Ugur Gurses, economist and former central banker. “Fully disclosing the extraordinary amounts of foreign exchange that failed to stop the depreciation of the lira would be tantamount to admitting a political failure.”

Analysts Atilla Yesilada and Murat Ucer of consulting firm Global Source Partners said the money was unlikely to enrich members of the government or nearby companies, but the loss of the bank’s shock absorbers “does not make the situation any less horrible.”

“These reservations were lost in an effort to ‘sustain the unsustainable,’ which will surely be recorded as one of the most misguided episodes of political mismanagement in modern economic history,” they wrote in a research note.

Erdogan has lamented the “ingratitude” shown by his son-in-law, former Finance Minister Berat Albayrak, who oversaw the policy of interventions until his sudden resignation in November, as the lira sank to a minimum. Three members of the CHP youth wing were arrested this year for having pamphlets with Albayrak’s image, saying he was “wanted” in connection with “lost” reservations.

The most recent opposition trick seems to have resonated with an audience with a per capita income reduced by a third in dollar terms since 2018.

# 128MilyarDolarNerede (# Whereisthe $ 128bn) has been trending on Twitter and was among the top three Google searches last week in Turkey.

The CHP, powerless for a quarter of a century, has created a website, www.128milyardolar.net, where users try but inevitably don’t spend $ 128 billion on “buying” items like food, a coronavirus vaccine, an airport, or the Houston Rockets basketball team. Its president, Kemal Kilicdaroglu, hosted a vision of the contest Who wants to be a millionaire? on Instagram with questions criticizing economic policy.

Although central banks do not use their reserves to finance government spending, in the eyes of many Turks it is public money. “It hurts me when I think the money could have been to help people during the pandemic, to save jobs and buy more vaccines,” said Ozkan, a 23-year-old hardware salesman who refused to give his last name. .

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