Turkey seeks to allay suspicions over $128 billion in foreign currency losses

Turkey’s government said the central bank may publish details of its foreign exchange transactions after political pressure mounted for it to account for a claimed $128 billion in losses.

The government sees benefit in announcing the data to “prevent this being used as political material and to get rid of information pollution”, Treasury and Finance Minister Lütfi Elvan said in a televised interview with the NTV news channel on Monday.

Opposition political parties and many economists have queried how the central bank spent tens of billions of dollars of the reserves last year as the lira hit successive record lows against the dollar, leaving its war chest severely depleted.

No one could be accused of corruption and President Recep Tayyip Erdoğan gave no order for the sales, which were legal, Elvan said.

Political pressure to explain the reserve losses has mounted after Erdoğan sacked former finance minister Naci Ağbal as governor of the central bank last month. Ağbal, appointed in early November, sought to investigate the depletion of the reserves, making Erdoğan uncomfortable and contributing to his dismissal, Reuters reported on March 31.

The central bank has not sold any foreign currency reserves since November, Elvan said. The lira had hit a record low of 8.58 per dollar the day prior to Ağbal’s appointment. It then strengthened after he raised interest rates and pledged tighter monetary policy. The currency traded little changed at 8.08 per dollar on Tuesday.

The central bank had “carried out these sales-purchase transactions through a corresponding bank on electronic transaction platforms”, Elvan said.

Elvan has failed to meet a constitutional obligation to answer parliamentary questions about the foreign exchange transactions, the main opposition Republican People’s Party (CHP) has said. Last week, police in Istanbul tore down giant CHP posters that asked where the reserves had gone.

The bank’s foreign exchange reserves, net of liabilities such as currency swaps, lie deeply in the red following the sales. Under Murat Uysal, Ağbal’s predecessor, the bank had engaged in swap transactions with state-run banks to defend the lira while keeping interest rates at below inflation to help the government engineer a borrowing boom.

The reserve losses occurred under the watch of former Treasury and Finance Minister Berat Albayrak, Erdoğan’s son-in-law. Albayrak resigned the day after Ağbal’s appointment. He has not been seen in public since.

Goldman Sachs said in November that the central bank spent more than $100 billion of its reserves, including engaging in swaps with local banks, in the first 10 months of the year.