Tag Archives: Tayyip Erdogan

Turkish Lira: A curious bit of creative accounting?

Turkey’s central bank continues to defy gravity. Its inert rate-setters held the benchmark interest rate at 14% for the fifth straight month recently, despite worsening inflation and the continuing collapse of the Turkish lira. It remains surprising how markets seem indifferent to bizarre monetary policy from the Turkish central bank.

The country’s monetary policy is inefficient and makes no sense. The central bank has no impact on monetary policy. Its policy rate has no impact on market rates.

However, Turkey’s central bank serves as a lira printing house and as the accounting department of the Erdogan administration.

The press picks up on these inconsistencies. One such article was published by Bloomberg – syndicated to Al Jazeera – on 4 January 2022, written by Cagan Doc:

Mystery surrounds end-of-year windfall for Turkey’s central bank

Turkey’s central bank had penciled in an expected $5.2bn loss on December 30, but managed to end the year $4.4bn in profit

Turkey’s central bank posted an extraordinary daily profit of around $10 billion on the final day of 2021, sparking questions on what caused this overnight boon that will trickle down to the nation’s Treasury.

The monetary authority had penciled in an annual loss of around 70 billion liras ($5.2 billion) on Dec. 30 but ended the year with 60 billion liras of profit, an unprecedented change of fortunes in a single day, according to its daily balance sheet. In February, the Ministry of Treasury and Finance – as the central bank’s biggest stakeholder – will begin collecting much of that sum as dividends.

The abrupt turnaround comes after President Recep Tayyip Erdogan unveiled measures meant to compensate lira investors for any losses. The Turkish currency slid 44% against the dollar last year, largely as the central bank – egged on by Erdogan – slashed its benchmark rate by 500 basis points since September.

The lira’s depreciation has fueled consumer price rises, with inflation ending the year past 36%, the highest level since September 2002. That’s eaten into Erdogan’s popularity as 2023 elections approach. But even with guaranteed returns on lira deposits, Turkish investors are still holding on to foreign currencies, undermining the Turkish leader’s plan to support the lira without raising interest rates.

Erdogan, who has attacked elevated borrowing costs as a brake on economic growth, pledged to remove the “bubble” from inflation in a speech on Tuesday, calling exchange-rate fluctuations and ‘excessive’ price increases ‘thorns’ on Turkey’s path. His policy of cutting rates to bring down inflation goes against mainstream economic thinking.

The central bank declined to comment on the dramatic move on its balance sheet, which was first reported on Monday by the bank’s former deputy governor Ibrahim Turhan and ex-banker Kerim Rota, both members of the opposition Future Party. Two officials familiar with the matter said it was in line with independent auditors’ accounting advice, but asked not to be identified because of the sensitivity of the matter.

According to Turhan, a possible explanation for the sizable overnight profit boost could lie in the sale of foreign-exchange reserves to the Treasury. The lira’s depreciation makes foreign reserves more valuable in local currency, but that can’t be logged in the profit column until the reserves are sold, he said.

The same amount of dollars would then have to be bought back to maintain the reserves level, Turhan said.

The Treasury’s borrowing program for the current three-month period showed authorities were already expecting 44 billion liras in external revenue next month.

Turkish Cypriots fear the heavy hand of Erdogan

The following article was originally published in The Times on 26 July 2021. It provides a context for the current likelihood of the success of any peace talks regarding the long-running conflict in Cyprus.

Under a punishing sun and the equally searing glare of international condemnation, President Tayyip Erdogan took the salute as the Turkish army paraded through northern Cyprus last week.

Hundreds of commandos marched in file while fighter jets and helicopters flew low and a long column of tanks and armoured vehicles roared past. Chants for the Turkish leader broke out from the crowd that had gathered to watch, many among them clutching placards of his image.

He gave them what they wanted: a raging recap of Cyprus’s bloody history, a diatribe against the hypocrisy of the West and assurances that the north will forge ahead to full independent statehood, torching the UN peace process predicated on reuniting the island. Away from the parade, his announcement that Varosha, once a glittering resort largely owned by Greek Cypriots, will be redeveloped by Turkish companies, has drawn rebukes from the UK, the US and the UN security council.

Plans for Turkish companies to develop the long abandoned resort of Varosha have fuelled fears of a new war on the island.

It was also eyed warily by many Turkish Cypriots, despite the enthusiastic turnout at the parade, which is held annually to mark the Turkish army’s landing on the island during the war of 1974.

For the first time Serdar Denktas was not there; instead, the veteran Turkish-Cypriot politician and son of the founding president of northern Cyrus sailed his boat to a more peaceful part of the island and contemplated the fading prospects for reunification.

“Once people lose hope, some of them look to Turkey, others to Greece. That is a loss for the Turkish Cypriots. Once our generation goes, we are finished,” Denktas, 62, said. “A two-state solution will not give us a heads up. I would love to be recognised but I know it won’t happen. We have to start with a very moderate policy with the Greek side, start working together on environment, health and trade with the political equality we had in the 1960s. Varosha could have been used in this direction. Instead, they open it and don’t care what anybody thinks. [Opening Varosha up to Turkish investors] would bring us to the edge of a new war.”

It is easy to forget that Cyprus, where a million Britons holiday each year, is Europe’s most enduring frozen conflict. Since 1974 it has been split straight through its capital, Nicosia. To the south, a Greek-speaking republic has joined the EU. In the north a complex society, tiny but unlike anywhere else on earth, has emerged.

The self-proclaimed Turkish Republic of Northern Cyprus was founded in November 1983, nine years after Ankara sent troops to defend the Turkish Cypriots in the aftermath of a Greek coup on the island. Rauf Denktas dominated politics there into the 21st century, and like many of his generation was determined to find a way to reunite the island.

Today about 30,000 Turkish troops remain stationed in the north, and while the state remains unrecognised by all but Ankara, it does run a representative office in London. You can fly there only from Turkey, and embargoes mean that it is mostly only Turkish companies which invest there, although a large community of British expatriates own homes. It has become a casino capital despite gambling being banned in Turkey, with 27 of them scattered across the north. There are 18 private universities, which attract scores of students from Africa and southeast Asia; young Pakistani men were among those who came to see Erdogan at the military parade.

After 1974 settlers from the Turkish mainland moved to the island in waves, bringing a more conservative, nationalist culture with them. Their descendants now equal the original Turkish Cypriots in numbers. The total population of 300,000 is still so small, however, that degrees of separation are slashed.

Ersin Tatar, 60, the new nationalist president who was elected with Erdogan’s backing in October and is a staunch opponent of reunification, was once an accountant to Asil Nadir, the Polly Peck boss jailed for stealing £29 million from his empire. At Nadir’s trial, one policeman said that Tatar had shredded papers for his boss. After years of speculation, the Serious Fraud Office in the UK confirmed in 2019 that Tatar was not under investigation.

The south is hardly doing any better. The banking crisis of 2012 prompted the government to sell citizenship to foreigners in return for a €250,000 investment in property; a scheme that was dismantled this year when it emerged that oligarchs and corrupt politicians from across the world had taken the opportunity to buy themselves EU passports. Relatives of President Anastasiades, 74, and members of his government are said to have profited from the scheme.

Russia’s influence has also mushroomed in the south, largely due to Syria’s civil war. It has struck a deal allowing its warships to use Cypriot ports, miles from the British air bases, while Russians are among the biggest citizenship investors. There is even a political party set up by and for Russian Cypriots.

Now there is a tangible sense that this volatile balance is tipping. Elections in the south in May resulted in gains for the ultra-nationalists, while a mounting row over the ownership of undersea hydrocarbons is deepening the mistrust. Even those in north Cyprus who oppose Erdogan’s growing influence say the south bears the brunt of the blame for his interventions.

“Anastasiades chose to put the political conflict aside, ignore the rights of Turkey and those of the Turkish Cypriots in the maritime zones and monopolise all hydrocarbon licensing and partnership agreements. The long-lasting isolationist policies of the Greek Cypriots on Turkish Cypriots and exclusion from the EU law continues to result in a growing dependence on Turkey,” said Fikri Toros, the foreign relations spokesman of the Republican Turkish Party, one of two blocs in the north Cypriot parliament to boycott Erdogan’s speech there last week.

Denktas ran against Tatar in October’s elections in an attempt to rein in Turkey’s influence and keep hopes for reunification alive. He found himself up against the might of Ankara, which poured money and people into Tatar’s campaign. Several opposition candidates, including Mustafa Akinci, the president at the time, say they were put under pressure to withdraw, including through visits from Turkish intelligence officers.

“I grew up adoring Turkey. I wasn’t able to criticise any Turk. When I entered politics and started criticising, my father would get angry,” Denktas said. “If Turkey has a good future, we will have a better future, but I feel we are vulnerable. We don’t have the power to decide for ourselves. We feel a lack of respect from the whole world. When the same comes from Turkey, it breaks our hearts.”