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bne June 2019 Cover Story I 31
ANALYSIS: Turkey’s net FX reserves excluding swaps fell to minus as of May 17
Akin Nazli in Belgrade
Turkey’s net foreign currency reserves, excluding the amount raised via short- term FX swaps with local lenders, fell to minus $867mn as of May 17 from plus $1.33bn a week earlier, according to bne IntelliNews’ calculations based on the Turkish central bank’s latest weekly balance sheet and the estimated outstanding amount raised through the swap transactions.
The Central Bank of the Republic of Turkey (CBRT) persistently avoids calls from the markets to transparently provide details of recent developments in its FX reserves. It thus requires outside data mining to assess the actual situation.
Turkey’s IMF-defined net international reserves, including central bank reserves and public sector deposits, fell to $24.9bn as of May 17 from $26.7bn on May 10, the CBRT’s latest IMF-defined balance sheet, published based on a January 2002-dated Letter of Intent to the Fund, showed on May 23.
However, the IMF-defined figure includes net gold reserves. Therefore, the net gold reserves can be calculated via the central bank’s weekly statement on its balance sheet.
Accordingly, Turkey’s net gold reserves rose to $12.5bn as of May 17 from $11.9bn the previous week. It follows that the net FX reserves fell to $12.3bn as of May 17 from $14.7bn the previous week.
Finally, the swaps’ share in the net FX reserves must be gathered via secondary sources that have access to the central bank’s Turkish Lira Currency Swap Market, since the CBRT does not provide data on the market.
According to Bloomberg, FX swaps with local banks amounted to $13.2bn as of May 17 while a Financial Times report outlined on May 10 how the total amount on loan from local banks through one-week swaps hit a new high of $13.4bn on May 10, up from $11.7bn the previous week.
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came up with a scheme where young men can avoid military service in return for paying additional taxes, including a Tobin tax, and these new regulations are now being pushed through parliament. How much money could realistically be generated from the draft-dodgers tax is not known.
I know what you did last summer
Turkey’s battered economy is struggling for oxygen. The lira has been buffeted by squalls of low confidence and lost more than 40% of its value over the past two years. With the foreign currency reserves running low, investors are trying to
map out Ankara’s remaining options for turning the tide. Reuters analysts made that plain on May 21 in an op-ed entitled “Turkey: Where to go when the cash runs low”. In the piece, some unnamed analysts estimated the government would have to find some $40bn-$90bn to avoid a sovereign default.
Turkey’s current situation is “for many economists, a textbook emerging market currency crisis”, the article added. And all this follows on from the currency crisis last summer when Ankara found itself up against the balance of payments (BoP) crunch last August after the final trigger was pulled by the row between President Recep Tayyip Erdogan and Donald Trump over the detention of US pastor Andrew Brunson.
Brunson or no Brunson, observers believe Turkey never had much chance of avoiding a lira collapse given its years-long credit-fuelled boom. The
bill for that growth simply came due and the state couldn't meet it. The speculation is that this summer’s “Brunson” will be a fresh row between Erdogan and the US over the impending delivery to Turkey of Russian S-400 missile defence systems that pose a security threat to Nato hardware. The politicians in Ankara actually welcome the fracas with Washington as it hands them a convenient excuse to mask their economic bungling.
Turkish president Recep Tayyip Erdogan’s simplistic belief that low interest rates bring low inflation and fast growth coupled with his interference
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