M. MURAT KUBİLAY
Reserves do not constitute a form of public expenditure; reserves exist without any contract declaring the purchase of goods or services. So the proposition that we could have used these reserves to get vaccinations or to benefit SMA patients is a completely false. Though such claims are intended to explain and expose the policy mistakes to the public, there is a risk of making a false claim, even while being right in principle.
Furthermore, there is still 128 billion dollars worth of money in the safe of the TCMB (Central Bank of the Republic of Turkey), exchanged for the 128 billion dollars sold, but not in dollars, rather in TL. In other words, the money is in place, but in the form of domestic currency not in foreign currency.
So what is the issue?
Let us start with the simple fact that the TCMB is the only institution in the world that has the ability to print the Turkish Lira, which has no international equivalent. In other words, while the currency and gold stored in TCMB’s safe have a meaning, stores of TL have no such value. This is precisely why the statement “the reserves were squandered” is correct, even if the sentence “the reserves have been handed out” is not. Because the TCMB can produce Turkish Lira whenever it wishes, there is no need to waste foreign exchange reserves to achieve this end.
So, who has purchased the currency reserves that were sold?
It is not possible to make specific and accurate distinctions; everyone who bought foreign currency from the market in the last few years, whether that be a single dollar or more, has benefited from this situation. Clearly, the deeper an individual’s pocket, the greater the extent to which one would potentially benefit. Big companies and the wealthy have of course benefited more, and it was a particular blessing for those with foreign currency debt.
So where precisely does the problem lie?
These sales were not carried out in a transparent process, and this is where the issue lies: this is a clear irregularity. Moreover, the policy has failed to achieve its goal. Not only did we see a sharp rise in the exchange rate and interest rates; we have also endured a deterioration in public finances with the sale of billions of dollars at low prices.
How large is the scale of the damage then?
To calculate this, one needs to know the average selling price, and even though the TCMB confirms the sales, the prices are not made public. In 2019, the highest value of the lira to dollar exchange rate was 6.20. This means the following: the price of even the highest of those sold in 2019 was below 6.20. President Erdogan stated that the reserves were sold due to the pandemic, however the economic shock created by the pandemic started in February 2020, months later. The current dollar-lira exchange rate is 8.15, suggesting tens of billions of Turkish Lira worth of loss to the public. Moreover, if we consider that these reserves can be replaced at a much higher exchange rate in the coming period, the loss will perhaps exceed hundreds of billion TL.
Is this all?
Unfortunately not; negative net reserves would increase the country’s risk of failing to serve its foreign debt and pay for its imports in the face of a shock in global financial markets. It is not an easy task to predict what the future will bring. If we experience a situation such as a war, embargo or sanctions, we may not be able to make transactions such as international payments and purchase of weapons. Clearly, net reserves that have dropped to minus 50 billion dollars pose an indisputable national security risk.
Why has the government responded so firmly and harshly in response to the calls for the whereabouts of the 128 billion dollars?
There are two main reasons for this reaction.
The first is that they know they are completely in the wrong, and the second is that it is easy to prove this fact.
The transaction records of the banks must be kept hidden for five years, while those by the TCMB and the Banking Regulation and Supervision Agency (BDDK) must be hidden permanently. There are not only electronic but also physically signed copies of the documented instructions which contain the details of these transactions. For this reason, it is easy to determine the total volume of sales, the exact price of the sales, and the people who gave the order – with a quick investigation after a change in power. In summary, it is not possible to cover up this issue if it is investigated. All that is required is the prevalence of the rule of law. After a power change, the biggest fear of the incumbent government will be the investigation of the TCMB reserves. Legally, the prime candidates responsible for these sales are Murat Çetinkaya and Murat Uysal, the heads of the TCMB at the time.
And of course President Erdogan has confirmed that everything takes place with his knowledge and approval. Berat Albayrak stands to be the missing link in this equation. Let us emphasise once again that the potential national security risks posited by this situation may yield completely unprecedented consequences. In short, the subject of the TCMB reserves is truly the Achilles heel of those currently in power.
To end this piece, purely for the sake of general knowledge, let me share some information that is completely unrelated to this subject: In the 1920s, America’s biggest gangster, Al Capone, was jailed for tax evasion. That is to say, not for countless criminal acts, but due to a (relatively) minor crime that is straightforward to document…
Translated by Gülce Naz Özkan