Turkey Losses Mount as Graft Backlash Brings New Protests

Turkey’s lira and bonds extended losses following weekend protests against a proposal making it easier to ban websites, part of the government’s fight against a corruption scandal it says has cost the country $46.5 billion.

At least 12 people were detained, and police used tear gas and water cannon to disperse the crowds, in small-scale scenes reminiscent of the Gezi Park anti-government protests that rocked Turkey in June. Prime Minister Recep Tayyip Erdogan’s ruling party says it’s fighting a concerted attempt to overthrow it, while protesters say he’s attacking the judiciary to further centralize power and kill the graft investigation. The lira depreciated 0.8 percent to a record low 2.2508 per dollar.

Deputy Prime Minister Ali Babacan said on Kanal 7 television yesterday that the turmoil since the graft probe went public on Dec. 17 raised government borrowing costs and increased the corporate sector’s debt burden. Economy Minister Nihat Zeybekci, who was appointed on Dec. 25 after his predecessor’s son was detained, said Turkey’s economy was strong and interest rates wouldn’t be increased, sending a message before a central bank meeting tomorrow and after the lira closed at a record low on Friday.

“We couldn’t create an economic crisis in Turkey even if we wanted to, it’s that strong,” BloombergHT quoted Zeybekci as saying on Jan. 18. “The central bank needs to not raise interest rates tomorrow,” he said today, adding that he didn’t see a problem with the lira at 2.25 to 2.30 per dollar.

Lira Plunges

The lira traded 0.5 percent weaker at 2.2432 at 5:47 p.m. in Istanbul, bringing its 12-month loss to 22 percent.

The depreciation accelerated on Jan. 17 after Turkey’s Savings Deposit Insurance Fund said it seized bank accounts and assets belonging to Mustafa Sarigul, the main opposition party’s candidate for Istanbul mayor. Sarigul said the seizure was related to a loan from 16 years ago, and was evidence of a government in a “state of panic” that was using state institutions as political tools.

After the market close on Jan. 16, Turkish regulators said they’d fined oil refiner Tupras Turkiye Petrol Rafinerileri AS, which is owned by the country’s largest industrial group, Koc Holding AS, 412 million liras ($185 million) for breaching competition rules. Ozan Cangurel, deputy chairman of the Banking Regulation and Supervision Agency, and two other officials were removed from duty as purges in the police force and judiciary spread to other state bodies.

Yields on two-year bonds rose 12 basis points, or 0.12 percentage points, to 10.16 percent, the highest since Jan. 6. The benchmark Borsa Istanbul 100 Index added 0.2 percent.

Investor Meetings

Turkey’s private sector has $255 billion in debt and the lira’s depreciation increases the burden on companies with foreign-currency borrowings, Deputy Prime Minister Babacan said. Finance Minister Mehmet Simsek flew to London yesterday to begin meetings with investors, after which he’ll travel to New York.

Turkish yields rose the most among 18 emerging markets tracked by Bloomberg in the past month. The graft investigation has ensnared the sons of three cabinet ministers, the head of a state-run bank, a billionaire builder and an Iranian gold trader.

Erdogan blames the probes on followers of a U.S.-based Islamic cleric, Fethullah Gulen, who hold powerful positions in the police and judiciary. The government has sent bills to parliament that would give Erdogan appointees more power over judicial bodies and also allow them to close down websites without court orders, sparking the weekend’s protests.

The central bank’s monetary policy committee meets tomorrow to decide on interest rates. The bank will hold its overnight lending rate at 7.75 percent, according to 10 of 14 economists surveyed by Bloomberg.

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