Turkish Lira Blows Out As Graft Scandal Comes Back With A Vengeance

Turkish Lira Blows Out As Graft Scandal Comes Back With A Vengeance


As we reported previously, on Monday new revelations in the graft scandal surrounding Turkish PM Erdogan in the form of a leaked phone conversation between him and his son, Bilal, detailing plans how to hide huge sums of cash, by some estimates up to $1 billion, brought back the political crisis that has gripped the nation front and center, and led to renewed demands by the opposition party that the PM resign. It also sent the USDTRY surging to levels not seen in weeks. We said: “Somehow we doubt that Erdogan will resign, however, this latest confirmation that the graft scandal that is and will continue to dodge the Turkish Prime Minister is not going away, may just be the catalyst that pushes the TRY, and with it some of the other recently pacified EMs, back into volatile mode.” Today the crisis is fully back and so is the predicted volatility, with the Lira blowing out by another 400 pip to a level of 2.240, not seen since the first week of February when the Turkish central bank was scrambling to restore confidence in the imploding currency.

What prompted this latest risk flaring? Several things. As Turkish media outlet Hurriyet reported, Turkey’s main opposition took to the streets of Istanbul on Feb. 26 to throw away millions of fake bills, in protest against the latest leaked voice recordings incriminating Prime Minister Recep Tayyip Erdo?an and his son.

In the call, apparently made in the wake of the Dec. 17 graft investigation, the prime minister and his son can be heard desperately trying to hide considerable amounts of cash.

“Everywhere is bribery! Everywhere is corruption!” shouted the demonstrators, a chant coined following the graft scandal, in reference to the symbolic slogan of the Gezi Park protests, while urging the government to resign.

The Republican People Party’s (CHP) candidate for the Istanbul mayoralty Mustafa Sar?gül used harsh language targeting the government over the revelations.

All across Istanbul you can see billboards of the prime minister saying ‘strong will.’ Here is a test of your will. Either you prove [that you are not guilty] or you resign and go,” Sar?gül said, referring to the campaign launched by an NGO close to the government after the corruption scandal surfaced. Huge posters of Erdo?an with the motto “strong will” can be seen across Istanbul, plastered near main arteries, on construction buildings and even on stadiums.

The fresh tape, leaked onto the Internet late Feb. 24 and allegedly featuring four phone conversations, is significant for being the first source to implicate Erdo?an personally in the vast corruption scandal.

The recordings feature Erdo?an and his son discussing how to get rid of a sum of cash equivalent to 2.2 billion Turkish Liras, according to the opposition. In one part of the alleged recording, the son, Bilal Erdo?an, is heard saying that he still needs to dispose of 30 million euros.

In a clear reference to the tape, CHP officials handed out fake money amounting to 30 million euros during a demonstration near Taksim Square, throwing the paper banknotes in the air like confetti.

“We are ashamed of this situation. Those 30 million euros are only a small share of the amount of cash that the prime minister told [his son] to ‘clean’ on Dec. 17. There is also the mother share. Think about how huge that must be,” said the CHP’s Istanbul provincial head, O?uz Kaan Sal?c?.

Erdo?an has virulently rejected the voice recordings on Feb. 25, calling them “fake” and denouncing as a “montage.” CHP head Kemal K?l?çdaro?lu has claimed that they are “as authentic as the Mount Ararat.” The Ankara Prosecutor’s Office has launched an investigation into the tapes, following a request from the ruling Justice and Development Party (AKP).

As we said on Monday, “since Erdogan has already eliminated any judges that are not sympathetic to his regime, the question of how much justice will be revealed is irrelevant.” However, in an indication of how desperate the government is to redirect attention from this latest scandal, a follow up article from Anadolu news agency, reported that a Turkish attorney, Hudaverdi Yildirim, has filed a complaint to Istanbul Chief Prosecutor’s Office against Fethullah Gulen on Wednesday, asking him to be tried of crimes such as, “forming an organization”, ” an organized coup attempt” and “organized deceit”.

Yildirim claimed in his petition that national ‘economic secrets’ and the activities of National Intelligence Service (MIT) were disclosed and an illegal chase was launched.

Referring to the December 17 anti-graft operation, Yildirim said: “National secrets were disclosed at the end of the anti-graft operations, which were illegally conducted and the country’s economy was damaged by around US$ 200 billion.”

Crimes of treason, a coup against a legal government, qualified deceit, and abuse of power were committed at the same time and by the same people, alleged the petition, adding that Fethullah Gulen, “used his political and moral power on prosecutors, by which he becomes instigator of the prosecutors that target legal government”.

The attorney demanded Gulen and his allies be tried of crimes of “forming an organization”, “an organized coup attempt” and “organized deceit and abuse of power.”

An anti-graft operation was launched on December 17 in Turkey, which resulted in the detentions and arrests of high-profile bureaucrats, including the sons of three former cabinet ministers and businessmen.

Turkey’s government claim it is targeted by a group within the state that has international links. Prime Minister Recep Tayyip Erdogan and senior government officials have blamed the group for ‘attempting to run an agenda of its own with the December anti-graft operation’.

Recall that Gulen, a dissident who currently lives in Pennsylvania, was the person whom the government accused of staging the graft probe which revealed just how deep the government corruption rabbit hole truly goes. That the PM is willing to go all the way in this latest scapegoating persecution perhaps confirms just how concerned the administration is, even if for the time being nothing dramatically has changed except for ever bolder revelations of just how much theft and corruption the current Turkish regime has engaged in.

Finally, should indeed the central bank once again lose control of Turkish FX rates, and should the EM crisis once again return, perhaps the DE Shaw correlation algos will finally realize just how far ahead of themselves they have gotten by simply chasing various carry funding currency pairs as an indicator of “fundamental” value.

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