The economy management in Ankara may have this thought of stopping the devaluation of the Turkish Lira by wounding the lira’s convertibility but actually it also damages the debt capacity of the Treasury.
May 20 2020
You will hold talks themed “Trade with national currencies” and at the same time you will wound the convertibility of the Turkish Lira; that seems incredible but it has happened. Turkish lira is rapidly losing in the last couple of years, the convertibility it obtained in the past quarter of a century by clawing its way up.
In order to prevent further devaluation of the lira, the Turkish Lira is banned to foreign institutions and banks, while at the same time foreign central banks are told “Here are Turkish Liras for you; give us the currency you have printed.” On the other hand, this is never asked, “Have I done whatever I need to do to protect my money other than banning my currency?”
No central bank whose currency is reserve currency wants to buy Turkish Lira and give their own money. Those that do so are not reserve currency anyway.
Ankara that is after swap lines from foreign central banks only cares about “balance sheet window dressing” and with the expression they love very much, “perception management.”
You have managed to provide yuan swap line and these yuans are recorded in the balance sheet. Well, can you sell these yuans and convert them to dollars in the international market? Probably not. Or can you convert the Qatari riyal? Even in London market, it might be hard to find the other party to convert 50 million riyals.
When the Turkish lira was banned to foreign institutions and banks, this has also annoyed the investments and investors that entered the country freely before. It has created a sale pressure on financial investments such as stocks and equities. As a matter of fact, as of the beginning of the year, portfolio investments that left the country have reached 10 billion dollars.
The economy management in Ankara may have this thought of stopping the devaluation of the Turkish Lira by wounding the lira’s convertibility but actually it also damages the debt capacity of the Treasury.
We understand that by almost nullifying the Turkish lira loan capacity of foreign institutions and banks as of the beginning of May, certain foreign institutions are increasingly having defaults in lira settlements.
As you know, the Banking Regulation and Supervision Agency (BDDK) on May 7 imposed a lira transaction ban on three foreign banks (BNP Paribas SA, Citibank NA, UBS AG) as they did not fulfill Turkish lira liabilities in due time. It then lifted this ban a couple of days later.
Actually, the conditions of this default situation were brought by the decisions made, with the ban on TL loaning.
After a week, on May 14, Europe’s two major international financial services, safekeeping and clearing institutions halted their Turkish Lira transactions. Clearstream and Euroclear institutions have jointly decided to suspend Turkish lira settlements (Delivery versus payment) over a shared electronic communications platform Bridge effective from May 18. They also noted that domestic settlements within their own system and internal settlements in lira would continue to operate as usual.
Obviously, these institutions have met with events of default due to investors who could not do their Turkish lira payments.
For this reason, in their statement they reminded that because overdraft credit lines were removed, they recommended that customers keep a buffer amount in their cash accounts in lira.
As a result, Ankara opted for a discourse and its accompanying action to change the perception in the eyes of the voter that the value loss of the Turkish lira was due to bad management. They spun it into the story of “foreign powers are attacking our economy.” This discourse and its accompanying actions have caused the current mechanisms to be disrupted in world markets and it pushed the Turkish lira into being a non-tradeable currency.
In the war of Ankara with “windmills,” the business has gone all the way to avoiding Turkish lira assets and even restricting the trade of Turkish lira assets.
On May 20, the BDDK announced it would exempt Euroclear Bank and Clearstream Banking from the lira ban. It actually wrote its mistake in its statement. This decision was to ensure the efficient trading of Turkish lira securities, and so the clearing operations of Turkish-lira-denominated bond and lease certificates transactions are not adversely affected, it said.
This means that they have not calculated any possible negative effects.
If you ask my opinion, the BDDK is still not aware of its mistake. They have not understood that Euroclear and Clearstream were not unable to find Turkish lira, but the investors, those who would have bought securities; in other words, investors who bought securities could not find Turkish lira and defaulted.
In another development, major banks which were pointed out to the public as “manipulators,” but were exempt from the transaction ban a couple of days later have decided to suspend their Turkish lira transactions.
Who is the loser here? It is us who want our currency to be widespread in the entire world and have a good commercial standing.
In a Bloomberg story on May 18, it said that BNP Paribas which was banned by BDDK on May 7 then later the ban was dropped, has decided to shrink its operations in the Turkish lira market. The bank’s foreign-exchange prime-brokerage unit has stopped offering customers new Turkish lira trades, the story said.
Until swap restrictions started in 2018, Turkish lira swap transaction volume in the London market was around 500 billion dollar monthly; after 2018, this figure went back to 350 – 400 billion dollars.
Turkish lira spot foreign currency transactions were around 250-300 billion dollars monthly, but they went back to 200 to 230 billion dollars.
According to Central Bank data, the foreign exchange spot transactions volume of commercial banks in Turkey was at the daily average of 8 billion dollars before August 2018, however, this figure dropped to 4.6 billion dollars in April 2020.
The consequence of banning the Turkish lira to foreigners has been shallowing the markets where the value of the Turkish lira was originating and forming. Would a currency be fragile in a shallow market, or in a deep and high-volume market? We know the answer; the Turkish lira is more fragile now in the shallow market.
Let us come to the money transactions passing from payments system.
Swift system is a global money transfer system. It is quite a conservative institution in terms of publicity regarding data. From time to time, it issues a report based on the remnibi tracker system it has formed for the yuan. From there, there is an opportunity to find a clue for the lira. In the January 2020 tracking report, such a table emerges in global payments.
On top of the 2017 list, there is the U.S. dollar, with the 39.8 percent of all payments. The Turkish lira is at the 20th place on the list with 2.5 per mille (thousand) of all payments.
Two years later, at the end of 2019, the share of the Turkish lira has dropped and another currency has taken its place, the Chilean peso. Turkish lira is no longer on the top 20.
All that has happened points out to one phenomenon: The Turkish lira, unfortunately, is a currency the international validity and usage of which is highly wounded.
It has been 30 years when the foreign exchange regime introduced foreign currency freedom in 1989. The convertibility of the Turkish lira which was obtained very hardly and step by step has been inflicted major wounds in the past two years under bad management. This is a huge pity.
He graduated from Ankara University, Department of Economics at
Faculty of Political Sciences in 1985. He started his professional career at
Central Bank of the Republic of Turkey at Foreign Exchange
Transactions Division in 1986. He worked at various divisions on reserve
management, foreign exchange transactions and open market operations.
Uğur Gürses moved to private sector in 1994. He worked for banks as
executive manager. His main responsibility was on treasury activities.
After leaving banking sector in September 2000, Gürses started to make
TV programs on business and financial markets at CNN TÜRK.
Gürses had been regularly writing articles on business and economics for
Radikal Daily between 2001-2014 and Hürriyet Daily between May
After July 2018, Gürses started to share his views at his personel blog,
“Ekonomi Alla Turca” – www.ugurses.net
The effort of “trivializing the issues” demonstrates the stance of Turkey's economy administration of “intervening on the symptoms and not on the issues.” It is the effort to sooth the society, to narcotize them by saying, “If you do not know, have not heard of it, if you do not care, then you are happy.”
Our economy administration wasted billions of cash foreign currency of the Central Bank and public banks just to maintain a self-styled economy policy and to keep the foreign exchange rate at a certain level. It is a pity that now, this economy management, with its collapsed economy policy, is resorting to the monetary tightening of the Central Bank.
Those who are ruling the country are spending so much energy on blaming vague foreign powers for all the wrong and bad management. If they could have channeled this energy to understanding the problems of the country, then we would have gone a long way and truly would have made these “foreign powers” envious of ourselves.
Turkish Treasury is “printing” forex bonds to create additional foreign currency for its own operations. Public banks, on the other hand, are spending their cash foreign currencies and replacing them with forex bonds the Treasury is printing.
For a long time, Ankara had eroded foreign currency reserves worth near 100 billion to hold the rate. Now, it has come to the end of the road. It has spent its last penny and left the rate to the markets. Thus, the “unheard of” invented exchange rate regime has collapsed.
Can the forex loss in Turkey be recovered without sending the bill to the public? If first signs of the establishment of political normalization, democratization and rule of law emerge in a powerful way in Turkey, then the “shrunken” foreign currencies will come back to the system.
If the ruling Justice and Development Party (AKP) sees an increase in erosion of their votes and the increased possibility of losing power in a possible election then it would "use all the ammunition till it is finished" for their own political continuity. But this would indeed mean leaving a “gigantic wreckage” for the citizens of the country.
The trend in that started just before the presidential elections in 2018 and accelerated after the elections changed the chemistry of the economy in Turkey. Private sector in Turkey was restricted in every aspect. From pricing to sourcing, to investment licenses, all regulatory higher bodies worked to make the entrepreneurs feel that ‘the party state’ was watching them at every step.
A currency, that is losing value and is not the good money to its own citizens, cannot be the good money of another country. Most probably those who declared they have switched to the Turkish Lira in Syria will be doing their payments in Turkish Liras and - even if it may be only a few pennies - they will keep dollars to store the value of their accumulation.
No matter how long or short the COVID-19 crisis lasts, a broad range of working masses, but especially the unskilled labor force will be the ones exceedingly affected. They will lose income and their jobs. As a result, inequality will spread on a mass scale and poverty will soar.
Ankara thinks it can obtain stability through the sale of foreign currency from the “back door,” which erodes reserves. Ankara has also resorted to bans and restrictions on foreign currency, but these are actually very old tools from the 70s.
What would we have included if we wanted to write a guideline for those who have the wish to intervene in foreign exchange rates but who do not have the adequate experience, but at the same time want to do it right? Taking into consideration today’s circumstances in Turkey, here is a list.
In those countries where it is presented as they have a “floating exchange rate regime,” if their central banks are intervening at the exchange rate, the name of this in economy literature is “fear of floating.”
Since the COVID-19 crisis erupted, Turkish Central Bank’s reserves fell nearly 20 billion dollars. Now, the thought of “Can there be a swap line opened from the U.S. Central Bank Fedreserve ?” is in question.
Turkey was caught with the coronavirus outbreak at a time when it was weak structurally. Just like in the COVID-19 epidemic, the underlying disease story is the story of those problems in economy which were “swept under the carpet” for a long time. Turkish government's economy policies after 2018 were based on bans, limitations and covering up of the symptoms rather than resorting to necessary steps to solve the problems.
Ali Babacan's unfulfilled desire, the “fiscal rule” theme features in the program of the newly established Democracy and Progress Party’s (DEVA) . Babacan had made preparations to start the practice of fiscal rule in 2010, until Prime Minister Erdoğan shelved this.
Even though its name is “floating exchange rate regime,” the current one in Turkey can only be called “commanded foreign exchange regime.” Some may object to that and suggest “managed floating rate regime.” If it was the latter, then the Central Bank would have openly done it. Everybody would have been informed of a rate regime which has targets, a framework and a system. But we do not know anything about this “dystopian regime.”
Talking about Turkey’s economy is like a stand-up show. Turkey’s Central Bank is as independent as the Fed, says the Finance Minister. This comparison can be uttered because of the mood created in Ankara where the government commands the economy. But even in regimes of command economic, there is interdict and logic.
Politicians may have an inclination to regard the Central Bank as a “cow of the government to be milked.” But it is logic blowing that those who have undertaken CB jobs have rolled up their sleeves and personally worked for that.
In the last two years, the economic policy team governing in Ankara that has been intervening on prices, interest and exchange rates with an iron fist has cost banking executives their jobs for making their own trade decisions in an open market. Turkey is supposedly an open market economy, but Ankara has been nudging market players under the table to the point that the market is “open” only in theory.
Both the consumption and investment data in the third quarter show a tendency toward “exhausted growth” in the private sector. I wrote at the end of October that this is the picture of weak, anemic growth. The economy is out of energy. With the economy in this weak and feeble state, Ankara cannot carry the country politically to 2023.
The "orchestrated" issue on the agenda last week was an effort to form public opinion about punishing comments on economy by jail sentences and monetary fines. Stories in newspapers were followed by a speech by Economy Minister Berat Albayrak the next day, who wanted to lay "thought infrastructure" for this.
Russia's strategy is quite clever; it continues to accumulate reserves by using dollar and euro for its exports while using ruble for one third of imports. By receiving 7-8 percent of its net foreign trade in ruble, it creates demand for its currency at the same time.More so, Russia is trying to recruit Turkey as a customer for its Russian made SWIFT alternative SPFS and again homemade credit card system MIR.
The three-way wheel of the Turkish economy, which depended on the flow of foreign capital, domestic credit growth, and household consumption, has stopped. It seems like the politicians running the country in Ankara couldn't find the answer to "What awaits the Turkish economy in 2020?"—since they undertook a military operation in Syria to get back the votes they lost due to the economic crisis.
Ankara's conflict-oriented foreign policy has received the public's support for military operations, but public opinion often fails to translate into votes. While Ankara's "enemy" in military conflict is ever-changing, the northern Syria conflict was revealed to be the only intervention that expanded the government's voter base.
Selahattin Demirtaş writes: You have re-arrested us after six years. You say we are the instigators of the Kobane massacres when we were actually the victims. Do you think you will be able to make us responsible for this through conspiracies based on secret witnesses and be saved from responsibility? You must genuinely believe that the fascism you rely on today will always exist.
Turkish police on Oct. 22 detained 14 people in anti-ISIS operations in Istanbul. Police said that 13 of those apprehended are foreigners and their extradition processes began. Sources told state-run Anadolu Agency that some of the suspects were active in Syria.
Refugee children are isolated to a single school in the central Turkish province of Kırşehir, daily Evrensel reported. The school has reached enrollment figures of more than 1,000 elementary and middle school students, all of whom are refugees. Smaller numbers of refugee children coming from relatively well-to-do families were reportedly able to enroll in regular schools alongside Turkish students.
Turkey's three opposition parties have denounced a recent proposal by the AKP for the establishment of the Turkey Environmental Agency, which they claim will pave the way for corruption and nepotism. "It runs parallel or even rival to the Ministry of Environment and Urban Planning in terms of its inspection authority but it itself is exempt from both internal and external inspection,” the CHP said.
Turkey's Deputy Interior Minister İsmail Çataklı has said that reports of Ankara mulling re-imposing curfews are "completely baseless." Çataklı's comments came after Reuters, citing a senior official, said that the government is weighing the re-implementation of lockdowns to stem rising coronavirus cases in the country.
President Recep Tayyip Erdoğan's salary has been raised by 8.3 percent to a total of 88,000 Turkish Liras, as part of a budget proposal submitted by the ruling AKP government to parliament. Erdoğan's new salary will be effective as of January 2021. Earlier in October, Erdoğan had urged the believers of Islam to have “patience” in the face of financial problems.
Some 32 deputies in parliament failed to take the stand except to take an oath, daily BirGün reported on Oct. 21. A total of 27 of said deputies were members of the ruling Justice and Development Party (AKP), receiving more than 500,000 liras in annual salaries when combined.
The trial into the murder of prominent Kurdish human rights lawyer Tahir Elçi started on Oct. 21, amid further obstacles to securing an effective investigation into the killing. None of the three defendant police officers attended the hearing in person in the courtroom, but instead appeared via the video system. Elçi family's lawyers said that this is against the normal procedure and the case was being handled in a “negligent” and “impartial” way.
Turkish police have seized 879 animal and plant fossils worth $10 million from two houses owned by Islamic televangelist cult leader Adnan Oktar. Officials said the fossils would be delivered to a museum in Ankara.
The Istanbul 15th High Criminal Court has rejected exiled journalist Can Dündar's appeal against the seizure of his assets. The court has said that it has found the 14th High Criminal Court's Oct. 7-dated decision “in accordance with procedure and law.”
In a parliamentary question addressing Interior Minister Süleyman Soylu, HDP lawmaker Ali Kenanoğlu has asked what kind of legal proceedings the ministry has run against the assailants of 36 publicly known hate crime incidents that were committed against Alevis in the last eight years. Kenanoğlu's inquiry came after unidentified assailants on Oct. 20 painted threatening messages on an Istanbul apartment building housing Alevis.
Turkey said it would not hesitate to send soldiers and provide military support for Azerbaijan if such a request were made by Baku. "There is already a military cooperation agreement between Turkey and Azerbaijan. If there is a need and Azerbaijan makes such a request, then Turkey would do it openly [provide military support]," Vice President Fuat Oktay said on Oct. 21.
Unidentified assailants have stabbed a 14-year-old Syrian child to death in Turkey's Central Anatolian province of Konya. Vail El-Mansur was on his way to the tailor shop he was working at when he was murdered brutally.
Turkish authorities seized 220 kilograms of cocaine on a ship that arrived at a port in the country's southern coast from Brazil. Police in the coastal province of Mersin found the cocaine hidden in a container carrying packages of paper.
Istanbul University's Cerrahpaşa Medical School has been observing twice as many patients, the dean said on Oct. 20. Turkey's official numbers receded to early May levels on the same day, observing some 2,026 diagnoses. "There's almost a doubling of the number of cases and patients seeking help in Cerrahpaşa. The winter might be rough for all of us," the dean said.
Turkey will send some 110,000 tons of grains and flour to countries in need, primarily Syria, a presidential decree in the Official Gazette said on Oct. 21. While the grains will be handed out by Ankara's Disaster and Emergency Management Authority (AFAD) and the Turkish Red Crescent, any wages related to the operation will be taken out of the Treasury's budget as well.
During a recession that has dealt a deep blow to agricultural producers across Turkey, potato farmers are struggling to get by while retailers purchase produce cheap and sell at high prices to consumers. "I don't like the AKP anymore,” said one 70-year-old farmer, who has grown potatoes in Niğde for 45 years.
A controversial social media legislation has enabled the Turkish government to swiftly block access to scores of news reports from critical newspapers and websites within the past month. "What we are facing is a heavy censorship mechanism,” cyber-rights expert Yaman Akdeniz told the daily Cumhuriyet.
The death of Serkan Tumay in a prison raised concerns on the prison conditions in Turkey once again. While Tumay's family says that he was tortured by prison guards repeatedly and died as a result in Kırıkkale F-Type Prison, opposition deputies Ömer Faruk Gergerlioğlu and Gülizar Biçer Karaca asked Justice Minister Abdülhamit Gül to explain how he died.
The European Court of Human Rights (ECHR) has found Turkey guilty of violating the right to free speech of Prof. Baskın Oran and Prof. İbrahim Kaboğlu, who faced prosecution in 2005 for publishing a report on the country's minorities. The ECHR said that the legal proceedings against the two academics had “inevitably created pressure" on them leading to “self-censorship.”
The Turkish government has said that it "laughs off" boycotts imposed on Turkish products in Saudi Arabia, Morocco and United Arab Emirates. "We laugh off some countries' boycotts against Turkey. They should first learn to stand as independent countries," AKP deputy leader Numan Kurtulmuş said on Oct. 18.
The International Monetary Fund (IMF) projected that income per capita in Turkey would drop to 2005 levels, an annual average of $7,720. The IMF also predicted a five percent contraction in the Turkish economy until the end of 2020, despite Ankara's 0.3 percent growth projection.
Turkey's net international investment deficit grew by $20 billion from the end of 2019 to reach a total $365.8 billion at the end of August. Turkey's international assets shrunk by 10.2 percent to reach $227.4 billion in the same period.
President Erdoğan on Oct. 17 announced the discovery of an additional 85 billion cubic meters of natural gas in the Black Sea, following a similar find in August. As a result of testing, analysis and detailed engineering work, another 85 billion cubic meters were added to the reserves we had discovered. The total amount of natural gas reserves in the TUNA-1 well of the Sakarya Gas Field reached 405 billion cubic meters," Erdoğan said.
Data from the Turkish Statistical Institute (TÜİK) revealed a dip in real estate sales vis-a-vis last year in September, dropping by 6.9 percent for some 136,744 residences sold. Meanwhile, the total volume of sales between January and September was larger than the number in 2019.
Kurdish artist Zehra Doğan's work that she created during her two prison sentences between 2016 and 2019 are on display in Turkey for the first time. The artist was jailed on terrorism charges and gained international fame after finishing her second sentence and holding a show at London's Tate Modern.
Turkey's Presidential Symphony Orchestra will thrive thanks to the completion of its long-awaited music hall, Conductor Cemi'i Can Deliorman said. Having been in the works for 25 years, the music hall's large auditorium can seat more than two thousand viewers.
Alterations on Istanbul's iconic Hagia Sophia reportedly violated guidelines mandated under the site's "UNESCO World Heritage" status. Converted within two weeks of the legal ruling that allowed Muslim worship, the ancient structure's mosaics were unlawfully covered up, and any work on it was deemed practically impossible, architectural publication Mimarlık Magazine reported.