Show us the money: Erdogan pressed over $128 billion used to support lira

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  • Turkish cenbank backed FX sales by state banks to prop up lira
  • Opposition pressing Erdogan about where reserves went
  • Erdogan defended FX sales overseen by former finance minister
  • Cenbank's net FX reserves at lowest in at least 18 years

ANKARA, April 14 (Reuters) - "Where is the $128 billion?" asked posters on billboards around Istanbul intended by Turkey's main opposition to embarrass and annoy President Tayyip Erdogan and his ruling AK Party (AKP).

The gambit seems to have worked. Police took the posters down, using cranes in some instances, according to videos shared online by the opposition Republican People's Party (CHP), which said it would keep putting them back up.

The question has also trended on social media, while the AKP on Tuesday blocked a CHP call to debate the missing funds in parliament.

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The sum refers to the dollars sold by state banks to support the Turkish lira in foreign exchange markets. The unorthodox policy began around the 2019 municipal elections and was ramped up in 2020, when the pandemic laid bare the lira's vulnerability and Turkey's reliance on external funding.

Bankers have calculated that the sales totalled $128.3 billion in 2019-20.

Erdogan says the sales helped to support the economy, but they sharply depleted Turkey's buffer of foreign reserves, leaving it more exposed to crisis, and opposition politicians want to know more.

"(Erdogan) says 'you cannot even ask me questions'," CHP leader Kemal Kilicdaroglu told party members on Tuesday, accusing the AKP of stifling debate. "Those leading the country must give an account to the people."

Kilicdaroglu said a prosecutor had ruled that some posters that bore a silhouette of the presidential palace were an insult to Erdogan. Insulting the president is a crime in Turkey.

WEAKENING LIRA

The lira, which has lost more than 50% of its value since end-2017, held around 6.85 versus the dollar between May and August 2020, which economists attributed to the forex sales. It later weakened to a record low of 8.58 by November, after the sales stopped. The lira traded at 8.08 on Wednesday.

The CHP first posed the question about the sales in February, prompting Erdogan to defend the legacy of his son-in-law, former finance minister Berat Albayrak, who had oversseen the policy. read more

Albayrak abruptly resigned in November when Erdogan named Naci Agbal as governor of the central bank, which had backed the dollar sales with swaps.

Agbal was in turn fired last month, partly, Reuters reported, because Erdogan was uncomfortable with the bank's investigation into the sales, which cut its net FX reserves by 75% last year. read more

The net buffer was $10.7 billion on April 2, the lowest in at least 18 years, central bank data shows. Excluding $41.1 billion in outstanding swaps, the reserves are deeply negative.

AKP lawmaker Mustafa Savas said the sales helped Turkey avoid raising interest rates or seeking International Monetary Fund support.

The CHP has asked how the sales were conducted and at what rate. AKP lawmaker Nurettin Canikli said they were all conducted at market rates.

Canan Kaftancioglu, the CHP's Istanbul organisation head, said just a fraction of the $128 billion could have supported Turks through a 28-day coronavirus lockdown that the party has urged in the face of a surge in infections.

"They will never prevent us from asking these questions," she said, adding the posters would hang outside CHP buildings until an answer was provided.

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Writing by Ali Kucukgocmen; Editing by Jonathan Spicer and Gareth Jones

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