Turkey’s ‘wealthless’ wealth fund a tangle of issues

Jan 13, 2021

Controversies surrounding Turkey’s sovereign wealth fund have solely grown since its creation 4 years in the past amid swirling questions on its jumbled authorized standing, doubtful functions and exemption from public auditing.

The fund — created unexpectedly in 2016 — was again within the highlight within the first days of 2021 as 75 million liras (some $10 million) in prizes from the New Yr’s Eve lottery, received by unsold tickets, had been transferred to the fund, which holds the license rights of the nationwide lottery. The switch triggered a social media marketing campaign, backed by celebrities and opposition leaders, urging Ankara to make use of the cash for the ultra-expensive therapy of infants with a lethal neuromuscular illness. President Recep Tayyip Erdogan, who chairs the fund, reacted angrily, slamming the marketing campaign as “immoral” for portraying the federal government’s well being care measures as inadequate.

Just a few weeks earlier, the fund was below hearth for promoting 10% of the Borsa Istanbul inventory trade, an organization in its portfolio, to its Qatari counterpart as a part of a sequence of offers with the rich Gulf emirate, Erdogan’s prime regional ally. And the fund’s exemption from public auditing stays a heated matter in parliament. 

The fund’s portfolio accommodates 20 public enterprises, some licenses and an array of immovable public properties. However in actuality, it hardly possesses any wealth. A lot of the entities in its portfolio stay hooked up to the Treasury and Finance Ministry or different ministries, and any revenues they generate go to the central authorities funds. Equally, any capital decreases or losses they incur are coated from the identical funds. Much more intriguingly, the fund, which has an organization standing, is past the auditing authority of the Courtroom of Accounts, Turkey’s prime public auditor, in contrast to the enterprises and banks whose shares it holds.

Turkey’s wealth fund is comparable solely in title to sovereign wealth funds created usually by oil-rich international locations to show their present account surpluses into investments. Turkey has a continual present account deficit, and its financial system depends on overseas capital to develop.

The fund rests on a flawed institutional design, which jurists describe as a authorized oddity. Apart from the authorized confusions it creates, the fund and its doubtful operations have fueled numerous conspiracy theories and futile debates, creating one downside after one other. 

The general public enterprises handed over to the fund, together with pipeline operator BOTAS, oil exploration firm TPAO, the Turkish Maritime Group and mining enterprise Eti Maden, relaxation on a particular authorized framework, which prevents the fund from making choices on their administration and operations. Their budgets, as an illustration, are drawn up by the Treasury and Finance Ministry, which can also be the place their earnings go.

In response to its institution statute, the fund goals to finance itself by means of licensing, revenue and lease revenues from the property it holds, and to offer capital help to “visionary tasks” in Turkey. But the revenues of the stated firms go to the central authorities funds and never the fund. Within the first 9 months of 2020, as an illustration, 2.3 billion liras (some $309 million) in revenues from public enterprises went to the funds quite than the fund. Equally, it was the treasury that injected capital to the general public Ziraat Financial institution and Halkbank after they wanted propping up in April 2019.

Additionally, most of the firms within the fund’s portfolio, together with the Borsa Istanbul, the postal service PTT, satellite tv for pc operator TURKSAT, Ziraat Financial institution and Halkbank, have their very own authorized statutes, which is one more reason stopping them from turning into the “wealth” of the fund. Every entity is hooked up to a ministry. The regulation regulating Ziraat Financial institution and Halkbank, as an illustration, says that their publicly owned shares are represented and managed by the related minister. In different phrases, the fund can’t use any shareholder rights relating to the banks.

Given all these limitations, critics have charged that the fund is in reality an alternate borrowing device for the federal government. Again in 2017, Selin Sayek Boke, a professor of financial system and senior member of the principle opposition Republican Folks’s Get together, argued that the fund, in its present form, “might solely take over public property and put them up as collaterals so as to borrow” — and with little accountability. It lacks the means “to transform assets into funding,” she stated, calling it “a borrowing fund quite than a wealth fund.”

Certainly, the fund has used public property as collaterals to borrow, however all it has managed to get up to now is a mortgage of 1 billion euros ($1.2 billion), assured by the treasury. The mortgage, issued in 2019 by a consortium led by Citibank NA/London and China’s ICBC, was used to rescue troubled development firms, as Al-Monitor reported on the time. The fund paid some $300 million for a stake, together with excellent liabilities, within the Istanbul Finance Heart, a sprawling mission the place development had stalled amid monetary snags. The businesses rescued by means of the acquisition had been Agaoglu Insaat — considered one of Turkey’s largest development corporations that noticed its heyday below Erdogan’s authorities — and Intas and YDA.

The dearth of any public auditing of the fund, regardless that it makes use of public property for sure transactions, stays some of the controversial facets of the physique. Critics say it has turn into a device for unaccountable governance and cronyism. Boke has slammed the fund as an “unchecked parallel treasury,” whereas Meral Aksener, chief of the opposition Good Get together, has referred to as it a “extremely harmful parallel treasury” that must be abolished.

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