The Turkish lira was poised to snap a three-day win streak on Friday thanks to a generalized risk-off tone tied to trade jitters, but also because President Recep Tayyip Erdogan ousted nine central bank officials in what amounts to a purge.
Among those fired (or “dismissed” if you prefer polite euphemisms) were the chief economist, Hakan Kara, and the risk management chief.
The shakeup comes a month after Erdogan fired Murat Cetinkaya and replaced him with Murat Uysal, who promptly came through with the largest rate cut ever.
The loss of Kara was immediately lamented by Turkey watchers, including BlueBay’s Tim Ash, who delivered a kind of eulogy on Twitter.
“Really disappointing. Hakan Kara was a very good economist and a decent human being, who was the front person for most foreign investors who visited the CBRT for the past 20 years”, Ash wrote, adding that Kara “always came across as utterly professional, and even when put over the coals by foreign investors asking direct/rude questions, he answered with utmost diplomacy defending the CBRT position often with great skill”.
That must have been something to behold, because there have certainly been moments when defending the central bank’s “position” was all but impossible.
Apparently, some of the vacant positions were filled by competent people, which counts as an “upside surprise” when it comes to CBT news. “All that said, Ali Cufadar, the new head of the CBRT’s banking department is decent – a real technocrat”, Ash went on to say Friday.
Thanks to the global hunt for yield, investors have been in a forgiving mood when it comes to Turkey of late. Even with last month’s rate cut, the country still boasts one of the best real rates in the world.
But this latest effort to reshape the central bank could prompt the market to reconsider whether it makes sense to give Erdogan the benefit of the doubt, something that almost always goes awry, although the Turkish president has a remarkable penchant for somehow rallying when the chips are down.
“The dismissal of civil servants in positions of expertise will not only make the monetary policy even more wrong but also leave no one to speak the truth”, Refet Gurkaynak, an economics professor in Ankara, said Thursday. “I know many of the central bankers we found out were dismissed”, he added.
On Friday, markets learned that Beijing helped prop up Turkey’s foreign reserves in and around the crucial Istanbul re-run election.
Specifically, the PBoC sent $1 billion to Turkey in June under a 2012 lira-yuan swap agreement. “Until Friday’s balance of payments data release, there was hardly ever a transfer from China under the swap deal that made a significant contribution to Turkish holdings”, Bloomberg notes.
Initially, folks pointed at Qatar for obvious reasons. Last September, following the lira’s summer collapse, Erdogan secured financial assistance from his allies in Doha, who rode to the rescue with a $3 billion swap arrangement at a time when CDS spreads on Turkey had exploded higher.
Western observers were quick to warn that although it’s nice to be able to count on Beijing, that’s not a substitute for maintaining good ties with the west.
As usual, the PBoC was unavailable for comment when Bloomberg tried to reach out. They don’t answer the phone (or the fax machine) outside of normal business hours.