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Erdogan turns back the clock on economic policy

Erdogan Looks Down
Tayyip Erdogan

Turkish President Tayyip Erdogan again on Wednesday defended former finance minister Berat Albayrak’s policies, despite the fact that Albayrak’s policies brought the country perilously near to a currency crisis as $128 billion in central bank reserves were spent in futile defence of the Turkish lira’s value.

Erdogan said FX reserves that dropped sharply under his watch were still in the Treasury and central bank. His remarks are credited with causing the lira to fall back to about 9 to the euro.

The defence of Albayrak suggests a retreat from high interest rates, which are needed to combat near 16 per  cent inflation, and may be a warning that the central bank will not be permitted to raise interest rates again at its May 19 policy meeting.

Albayrak, Erdogan’s son-in-law, was energy minister before moving to finance in 2018. In November, he abruptly resigned after Erdogan replaced the central bank governor in a surprise leadership overhaul, setting off a lira rally from record lows.

But the currency has declined in recent weeks in part because Albayrak’s legacy has resurfaced, raising the possibility of his return to government, analysts say.

Albayrak oversaw a policy in which state banks sold some $130 billion in dollars in 2019-2020 to stabilise the lira. The central bank backed the interventions with swaps, and the bank’s net FX reserves subsequently tumbled by about three quarters last year alone.

“They’re hung up on where the money is. The money is in the people’s Treasury and the central bank,” Erdogan said of opposition politicians, addressing lawmakers from his AK Party in parliament. “Nothing is lost,” he added.

The lira, which firmed on Wednesday morning, weakened briefly to 7.5950 from 7.5600 during the speech.

The central bank’s net FX reserves rose to $13.93 billion as of Feb. 26, bank data shows. Its outstanding swaps were $40.67 billion as of March 9, meaning the reserves are in deeply negative territory once the swaps are deducted.

Erdogan also said Turkey had made leaps in the energy sector during Albayrak’s term as energy minister, moving it closer to energy independence, such as the purchase of seismic exploration and drilling ships.

“You mocked him as the son-in-law, but these steps were all taken during Mr. Berat’s term,” he said of opposition parties. “You are so ungrateful,” he added, and thanked Albayrak for his work.

Late last month Erdogan began defending Albayrak’s policies after the main opposition Republican People’s Party (CHP) blamed the former minister for the country’s economic woes and depleted FX buffer.

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