The two main actors in the economic crisis gripping Turkey are the central bank, which runs the state’s monetary policies, and the Treasury, which is in charge of fiscal policies. The central bank is ostensibly independent, while the Treasury is attached to Treasury and Finance Minister Berat Albayrak, who is also President Recep Tayyip Erdogan’s son-in-law.
Those who follow how things work on the ground are well aware that the central bank does not act independently and is subject to direct and indirect government meddling. The bank has long felt compelled to seek Erdogan’s blessing in its interest rate decisions. Recently, it has come under pressure to let the Treasury use its resources and — again, at Albayrak’s behest — do something it should never do, namely directly or indirectly intervene in the foreign exchange market. The bank’s role in foreign currency sales by Treasury-controlled public banks, aimed at curbing the slump of the Turkish lira, is a case in point.
The central bank’s transfer of funds to the Treasury is even more intriguing. Such transfers are not something new — in fact, they are required by law, given that the bank is ultimately a state-owned company that transfers part of its profits to the Treasury. This year, however, the transfer that was due in April was brought forward to January via a legal amendment ahead of the March 31 local polls. As a result, the Treasury — saddled with major deficits due to the government’s preelection populism — was able to get early some 34 billion liras ($5.6 billion) instead of borrowing on high interest rates.
The Treasury has now reportedly set an eye on the central bank’s legal reserves, which represent 20% of its profits and a sum the bank sets aside by law to use in extraordinary circumstances. There are legal obstructions to the move, but given the government’s record on respect for the law, many are convinced it would not be discouraged by legal hurdles. Its only reservation seems to be that such a blood transfusion would lay bare the Treasury’s desperate situation for all to see, including the foreign money markets.
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