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15th May 2022

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Recep Tayyip Erdogan

When a flood of posters and banners appeared this month bearing the number 128 on them, police were quick to tear them down — arguing that they insulted President Recep Tayyip Erdogan, a crime in Turkey.

“Where is the $128bn?” asked the opposition Republican People’s party (CHP) on banners hung from its offices across Turkey, referring to the money it says the central bank has used to shore up the lira in recent years. Estimates vary widely over the amount spent, and Erdogan on Wednesday put the figure at $165bn — the highest assessment yet.

The opposition and other analysts say that this confusion illustrates the lack of transparency and poor governance at the heart of Erdogan’s economic policy, widely lambasted for its failure to stem inflation and halt the lira’s depreciation.

“All we are asking is a question but the reaction makes clear even that isn’t allowed,” said Gokce Gokcen, the CHP’s deputy vice-president for youth affairs. “The $128bn represents a very basic problem in governance in Turkey, where the administration lacks transparency and trust. We don’t know if the money was depleted to peg the currency, to whom it was sold, whether it left Turkey or if there was profiteering,” she added.

For many Turks, the exchange rate is a barometer of economic success, and Ankara deployed its reserves — the foreign assets a central bank holds to offset a nation’s liabilities — ahead of elections in 2019 and in 2020 during the pandemic in an effort to prop up the lira. It still tumbled 37 per cent against the dollar in the 18-month period until November 2020.

Critics accuse the bank of cloaking the amount it sold by avoiding public debt auctions, failing to publish data on the interventions and showing swaps, or borrowed funds, as assets on its balance sheet. The central bank governor said data was shared in line with international standards “in an extremely transparent manner”. A spokesman declined to comment further.

Erdogan on Wednesday railed against the CHP’s charges as “hullabaloo” and “treachery” meant to frighten off foreign investors. International reserves are now close to $90bn and “can be used when necessary”, he told his party members. Goldman Sachs estimates the central bank has negative net foreign assets of $60bn.

Recep Tayyip Erdogan, Turkey’s president. The opposition says there is a lack of transparency at the heart of his economic policy © Adem Altan/AFP via Getty Images

Erdogan also offered an account of the spending for the first time, saying $165bn was used in the past two years “when Turkey was confronted with an unprecedented demand for foreign exchange” to finance the current account deficit, portfolio outflows, companies’ foreign-denominated loans and citizens’ demand for gold and forex.

A self-described “enemy of interest rates”, Erdogan had effectively barred policymakers at the time from raising rates to slow double-digit inflation, leaving them with few options to prevent the lira’s depreciation.

Erdogan in March fired the third central bank governor in under two years after he raised rates more than expected and installed Sahap Kavcioglu, an academic who had defended using the reserves in his newspaper column. The shake-up further eroded central bank independence and unleashed more market turmoil.

“The president’s fundamental view of interest rates determines central bank policy, and political influence was behind the scale of the destruction of reserves,” said Ugur Gurses, an economist and former central banker. “Fully disclosing the extraordinary amounts of foreign exchange that failed to stop the lira’s depreciation would amount to admitting a political failure.”

Analysts Atilla Yesilada and Murat Ucer of the consultancy Global Source Partners said it was unlikely the money enriched members of the government or companies close to it, but the loss of the bank’s buffers “doesn’t render the situation any less awful”.

“These reserves were lost in an effort to ‘sustain the unsustainable’, which is sure to go on record as one of the most misguided policy mismanagement episodes in modern economic history,” they wrote in a research note.

Erdogan has lamented the “ingratitude” shown for his son-in-law, the former finance minister Berat Albayrak who oversaw the policy of interventions until his sudden resignation in November as the lira sank to record lows. Three members of the CHP’s youth wing were detained this year for possessing flyers with Albayrak’s image, saying he was “wanted” in connection with the “lost” reserves.

The opposition’s most recent stunt appears to have resonated with a public whose per-capita income has shrunk by a third in dollar terms since 2018.

#128MilyarDolarNerede (#Whereisthe$128bn) has trended on Twitter and was in the top three searches on Google last week in Turkey.

The CHP, out of power for a quarter of a century, has created a website,, where users try but inevitably fail to spend $128bn by “shopping” for items such as food, a coronavirus vaccine, an airport or the Houston Rockets basketball team. Its chair, Kemal Kilicdaroglu, hosted a take on the quiz show Who Wants to Be a Millionaire? on Instagram with questions criticising economic policy.

While central banks don’t use their reserves to fund government spending, in many Turks’ eyes, this is public money. “It pains me when I think that money could have gone to helping people during the pandemic, to saving jobs and buying more vaccines,” said Ozkan, a 23-year-old hardware salesman who declined to give his surname.

2021-04-22 00:00:00

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