Vice-President of the ruling Justice and Development Party (AKP) Nurettin Canikli, posted this series of tweets on August 22, 2020, Saturday:
1- “Right after our President announced the discovery of 320 billion cubic meters of natural gas reserve, Fitch Ratings revised Turkey’s outlook from stable to negative.”
2- “The reason why it is making this statement now is very simple: With the declaration of a natural gas reserve discovery, a very positive atmosphere has been created. It is inevitable that this positive mood would be reflected also on economic expectations.”
3- “Right at this point Fitch steps in and is trying to prevent the recovery of economic expectations. The reasons why Fitch has downgraded Turkey’s outlook have not been disclosed today. It has been discussed for months.”
4- “For those who have a difficult time trying to find a superior mind, here is another situation of being caught red-handed. This statement of Fitch cannot possibly be considered separately from Joe Biden’s statement on supporting the opposition in Turkey to topple Erdoğan.”
5- “Thus, they have not given up organizing operations on our economy to meet their goals. They were not able to achieve any results up to now. After the discovery of 320 billion cubic meters of natural gas, there is nothing left for them to do. Their efforts are in vain. All rivers fall into the sea.”
6- “It is the regular owls that are traumatized. They already have some kind of an imbalance, now, with the discovery of the natural gas they are totally lost. They cannot say a word. Together with those who fell sick after the opening of Hagia Sophia, they are listening to requiems now.”
What had happened?
Fitch Ratings international credit rating agency at U.S. New York time at 5.01 p.m. and 1 minute past midnight in Turkey time on August 21, (August 22, 00:01 a.m.) announced Turkey’s rating; it did not change the credit rating, but revised the outlook to negative.
Before reviewing Canikli’s tweets, let us remember when President Recep Tayyip Erdoğan declared the “good news.”
On August 19, President Erdoğan in a meeting he participated said, “With the good news we will announce Friday, a new era will open for Turkey.” On Friday August 21, the good news was announced at 3 p.m. as the discovery of a huge natural gas reserve in the Black Sea.
In his tweet series above, Nurettin Canikli said, “Right after our President announced the discovery of 320 billion cubic meters of natural gas reserve, Fitch Ratings Fitch Ratings downgraded Turkey’s outlook from stable to negative. The reason why it is making this statement now is very simple: With the declaration of a natural gas reserve discovery, a very positive atmosphere has been created. It is inevitable that this positive mood would be reflected also on economic expectations.”
According to Canikli, “Thus, they have not given up organizing operations on our economy to meet their goals. Nurettin Canikli’s position as Ak Party’s Vice-President in charge of Economic Affairs.
The announcement of the credit rating was scheduled for August 21, as economy experts and economists noted in their agendas; political parties must have been monitoring this closely also.
As part of corporate transparency, Fitch Ratings Inc. issued on December 19, 2019, the Sovereign 2020 Rating Review Calendar. According to this calendar, on August 21, 2020, Turkey, Bulgaria and Kazakhstan credit ratings would be announced. In other words, it was known eight months earlier that at the night of August 21, a credit rating announcement was scheduled.
The most interesting part is (If it had happened in another country, I would have called it “amusing”), international credit rating agencies such as Fitch Ratings send their credit rating or outlook changes to their interlocutors (Treasury and Central Bank) about three to five days before their public announcement. This is to ask their last comments, if they have, on the change.
Therefore, if they have made a downgrading or a change in credit rating or outlook, the Treasury and of course the related minister would know this beforehand. That means the government would always be informed three to five days before.
In short, it was known that Fitch would be lowering Turkey’s outlook to negative on August 19 when President Erdoğan said he would be giving good news on August 21.
Here are some facts that can be drawn from this tweet series of Nurettin Canikli, the vice-president of the ruling party AKP, in charge of economic affairs.
1- It is impossible for Nurettin Canikli not to know that a Fitch review will be arriving on August 21. He has a position in charge of these matters.
2- If he does not know, then the situation is even worse. The ruling party’s relevant executive is not aware of the information that an ordinary analyst knows.
3- Canikli should have known that Fitch’s Turkey rating review was due that day, as well as he should have known of the lowering of the outlook some three to five days prior. This must have been made known to the Treasury and the Minister of Treasury and Finance Berat Albayrak.
4- If the relevant cabinet minister did not inform him, then Canikli was left with the duty of writing a conspiracy theory based on this much lack of knowledge.
As a last note, it should be considered as a “generous advance” to Ankara and to us that despite the 60 billion dollars’ worth of reserve loss, Fitch is only changing the outlook to negative and not downgrading our rating.
Canikli wrote that this was a case of being caught red-handed and that would help those who were having a hard time trying to find the superior mind. He associates this with Joe Biden’s statement on support for Turkey’s opposition to topple Erdoğan.
The issue is coming from where and going where, right?
If our politicians, instead of clinging to the “superior mind” rhetoric, would do politics through working and with a little bit of wisdom and knowledge, then as a society we would have more self-confidence, don’t you think so?
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.
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.
Unlike what those in Ankara who are managing the economy believe, 51 percent of the economy is not psychological perception, it is trust. Empires of fear do not generate trust.
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.
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.
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.