Turkish economy under pressure as Central Bank chief sacked

A general view of residential and commercial areas in Ankara, Turkey, April 1, 2019. (REUTERS)
Updated 07 July 2019

Turkish economy under pressure as Central Bank chief sacked

  • Durmus Yilmaz, a former Central Bank governor, said that the sacking is not based on legal grounds and it undermined the bank’s independence

ANKARA: The confidence of foreign investors in Turkey’s recession-hit economy is at stake following the surprise dismissal of the governor of the Central Bank by President Recep Tayyip Erdogan on Saturday.
The four-year term of Gov. Murat Cetinkaya was due to last until 2020. But he was replaced by his deputy Murat Uysal by presidential decree with no official reason given.
Uysal has spent most of his career at the state-run Halk Bank.
Analysts suggested that the dismissal is likely related to Erdogan’s insistence on keeping lower interest rates while the bank has mostly maintained its benchmark interest rates for 10 months.
Erinc Yeldan, professor of economics at Bilkent University in Ankara, said this is the latest wave of economic mismanagement that will not only influence the Central Bank but also other regulatory institutions.
“The Central Bank was facing pressure for about three years to be prevented from following an independent interest rate policy. This latest move is a direct intervention into its independence and is called crony capitalism,” he told Arab News. According to Yeldan, this move will increase the perception of Turkey as risky for domestic and international investors, alongside the deteriorating macroeconomic balances.
“I expect the fluctuation in the exchange rates and the mismanagement of the risk perception to bring further instability and prestige loss for the Turkish economy,” he added.
Wolfango Piccoli, co-president of Teneo Intelligence, said that the sacking of Cetinkaya suggests that Erdogan is not willing to tolerate a slow growth outlook.
“It is more proof that the independence of the Central Bank is gone and that Turkey’s overall institutional setup is getting weaker and weaker,” Piccoli told Arab News.
“It sends all the wrong signals to investors. A selloff of the Turkish lira is likely on Monday. The new governor will face an uphill struggle to gain any credibility,” he added.
Tim Ash, senior emerging markets strategist at BlueBay Asset Management, said Cetinkaya had few supporters and his sacking was expected.
“This was an opportunity to refresh and renew the Central Bank with someone from outside with real monetary policy gravitas. That opportunity has been wasted,” Ash told Arab News.
“The assumption is the new governor was hired because he will cut rates on demand from the presidential palace. Ironically, Uysal’s hiring likely makes it more difficult for the Central Bank to cut rates as the risk is that the market will react badly to this change,” he added.

This is the latest wave of economic mismanagement that will not only influence the Central Bank but also other regulatory institutions.

Erinc Yeldan, Economics professor

Durmus Yilmaz, a former Central Bank governor, said that the sacking is not based on legal grounds and it undermined the bank’s independence.
“They gave a terrible signal to the market. The credibility of the Central Bank was already being questioned, and now the crisis has been deepened,” Yilmaz told Arab News.
The timing of Cetinkaya’s removal also coincides with impending political turmoil as Turkey is set to receive Russian air defense systems that could trigger harsh sanctions by the US and put the lira under more stress.
Last year’s currency crisis diminished 30 percent of the lira’s value.
The next meeting of the Central Bank is set to be held on July 25, where a decision for easing monetary policy is expected.


Financial Action Task Force tightens screws on Tehran over terror financing

Updated 55 min 39 sec ago

Financial Action Task Force tightens screws on Tehran over terror financing

  • Watchdog says Iran failed to fulfill its promises to curb terror financing despite repeated warnings
  • Iran central bank chief Abdolnasser Hemmati said the decision will not affect the country

PARIS: An international agency monitoring terrorism funding announced tough new financial scrutiny of Iran on Friday and added seven countries to a watch list.

Pakistan, meanwhile, won a reprieve from the Financial Action Task Force at its meetings in Paris this week. The monitoring body gave Pakistan’s government another four months to crack down on terrorism financing and did not put the country on a damaging “black list.”

Iran and North Korea are the only two countries currently on the agency’s black list. That means international financial transactions with those countries are closely scrutinized, making it costly and cumbersome to do business with them. International creditors can also place restrictions on lending to black-listed countries.

The FATF decided on Friday to further tighten the screws on Iran, imposing extra measures that could require audits or more transactions and make it even harder for foreign investors to do business there.

The group made the decision because Iran failed to fulfill its promises to the FATF despite repeated warnings. In a statement, the organization said that Iran hasn’t done enough to criminalize terrorist financing, require transparency in wire transfers or freeze terrorist assets targeted by UN sanctions.

The head of Iran’s central bank, Abdolnasser Hemmati, said the decision will not affect the country.

“Such incidents will create no problem for Iran’s foreign trade and currency,” he said in a statement. Hemmati said the FATF decision was based on the “enmity” of the US and Israel toward Iran.

Pakistan, meanwhile, has been trying to get off the FATF gray list, the color code for countries that are only partially fulfilling international rules for fighting terrorism financing and money laundering.

Pakistan’s government has been working to shore up the country’s faltering economy and attract foreign investment and loans, making the FATF’s assessment especially important.

The FATF said that Pakistan had fulfilled 14 of 27 steps to get off the watch list, but still must do more to track money transfers and investigate and prosecute terrorism financiers.

The Pakistani government said in a statement that it “stands committed for taking all necessary action required” to fulfill the remaining steps. “A strategy in this regard has been formulated and is being implemented.”

The Financial Action Task Force also put seven new countries on its gray list because of gaps or failures in stemming the financing of terrorist groups or money laundering. The countries — Albania, Barbados, Jamaica, Mauritius, Myanmar, Nicaragua and Uganda — were ordered to take a series of legal and other steps to be removed from the list and avoid further financial punishment.