Erdoğan scorns claims of $128 billion in foreign currency losses

Turkish President Recep Tayyip Erdoğan lambasted the political opposition and some economists for claiming that the central bank spent $128 billion of its foreign currency reserves as the lira fell to successive record lows.

The allegations, which have created a political storm in the country, were “untrue from head to toe, ignorance from head to toe”, Erdoğan said in a televised speech to members of his governing Justice and Development Party (AKP) at the parliament in Ankara on Wednesday.

The central bank was forced to engage in significant foreign exchange transactions due to global economic developments and the COVID-19 pandemic, Erdoğan said. Turkey was not alone in taking measures and the central bank may do the same again if required, he said.

Demand for foreign exchange had increased, spurred on by capital outflows and efforts by Turkish firms to reduce their foreign currency debts, Erdoğan said.

Erdoğan said the central bank used $30 billion of its resources to finance Turkey’s current account deficit over the past two years, while capital outflows totalled $31 billion. Demand for foreign currency from industry totalled $50 billion, while regular citizens bought $54 billion of foreign currency and gold, he said.

“As you can see, only these four items total a figure of $165 billion," he said.

The comments were his most detailed yet on the allegations.

Demand for foreign currency in a country does not necessarily require a central bank to sell its reserves. The lira slid to a series of record lows last year.

Opposition politicians including Republican People’s Party (CHP) leader Kemal Kılıçdaroğlu and Ali Babacan, a former deputy prime minister and economy minister under Erdoğan, have called for a full account of the reserve losses and dismissed the government’s explanations.

Treasury and Finance Minister Lütfi Elvan has failed to answer a list of parliamentary questions posed by the opposition on the issue. Berat Albayrak, Elvan’s predecessor and Erdoğan’s son-in-law, resigned unexpectedly in November and has not appeared to make a public statement since.

Erdoğan sacked former finance minister Naci Ağbal as governor of the central bank in mid-March after a four-month term in office. Ağbal was fired after he sought to investigate the losses in the reserves and hiked interest rates, Reuters reported late last month.

Goldman Sachs said in November that Turkey’s central bank used up more than $100 billion of its foreign currency reserves in the first 10 months of the year. The reserves, net of liabilities, stand deeply in the red, according to calculations based on official data.