Minister of Treasury and Finance Mehmet Şimşek answered the questions of Bloomberg HT Editor-in-Chief Açıl Sezen in the joint broadcast of Bloomberg HT and Habertürk.
Here are the highlights of Minister Şimşek's statements, evaluating the issues on the economic agenda;
Of course, the liquidation process is going at the speed and within the framework we envisaged. First of all, let me say that we have determined some basic principles regarding liquidation. First of all, there is transparency. It has been clearly stated that public resources will not be used and it will continue that way.
There will be an interim payment. What is meant by interim payment is that the final payment will take time, and it is the same in this world. We said here that we would prioritize small and money market funds.
Payments up to 1 Million TL will be made quickly. The law is of course at the discretion of the Turkish Grand National Assembly. I do not know whether it will be passed within a week or not, but the relevant institutions have completed their preparations. But the most important issue is of course, as you know, the liquidation is carried out by İş Bank and Ziraat Bank, the two institutions tasked with this. First of all, we divided one liquidation into two. Companies that will be subject to ordinary liquidation and extraordinary liquidation. Ordinary liquidation has now been introduced for portfolio management companies whose financial structures are relatively manageable. As you know, a total of 131 funds, 131 funds within 7 portfolio management companies, were taken into liquidation. 66 of these 131 funds were completely liquidated and subjected to normal liquidation. Therefore, as of last week, A1 Capital, Pardus and Bulls. There are 3 of them, that is, a total of 7 portfolio management companies. The full liquidation of 3 of these 7 companies has been completed. If I had to give the numbers, 40.8 billion TL was paid to 45 thousand 747 accounts. Normal liquidation was successful.
As I said at the beginning, one of our principles is to prioritize small investors and money market funds. Let me give you the numbers, these 3 portfolio management companies are subject to normal liquidation and the liquidation has been completed, money market fund investors in the 3 portfolio management companies, let alone incurring losses, received an additional dividend yield of 1.43 percent compared to September 17. In stock-heavy funds, investors were able to get about 58 percent of the shares because the values of the stock were inflated, that is, they increased in value regardless of the company's fundamentals, while those values decreased. According to what? Based on the value on September 17. In other words, they received a 42 percent lower payment. But this is entirely due to the decline in the value of stocks. Therefore, in the 66 funds of the 3 portfolio management companies that were liquidated and subjected to normal liquidation, those in the money market fund received whatever their value was on September 17, and on top of that, they received a 1.43 percent return.
Target Portfolio will also be subject to normal liquidation. This company has 31 funds, four of which are money market funds.
Therefore, the normal liquidation of four of the 7 portfolio companies will probably be completed by the end of the week. The owners of Atlas Portföy are in dialogue with the liquidator institution. They have shown the will to put resources back. But it would not be right for me to comment at this stage.
If the law in the Turkish Grand National Assembly is accepted, small investors and money market funds will be prioritized immediately after it is accepted. Thus, 390 thousand accounts will be liquidated. The important part of the liquidation process will be completed. TMSF, Ministry of Justice, MKK all work together. All those who profited from market distortion activities were identified.
There is some payment to the refund accounts. We have set certain thresholds; those who earn 10 million TL and above in real terms will be applied first. If there is no voluntary return, the Ministry of Justice will carry out the relevant processes.
What remains is a complex process in just two funds. If there are not enough resources in the funds, which some may not have, there are resources I mentioned. It is very important to retrieve the assets transferred to individuals and companies that illegally benefit from the funds. The personal assets of those acting together will be applied for.
We will take an approach that will significantly increase sanctions for manipulations and other market distortions.
In fact, while we were sending the temporary liquidation bill to the Parliament, we, as the Ministry of Treasury and Finance and relevant institutions, worked on the permanent reform bill. So we turned it into a draft. However, we rightly said, "Let's prioritize the liquidation and make permanent structural arrangements with a calmer mind" because capital markets are also very valuable to us. It is such a large economy, now we are talking about a gross domestic product of 1.8 trillion dollars this year, with the effect of the exchange rate, we are talking about an economy of 1.8 trillion dollars. This economy cannot be supported by the banking sector alone. In other words, the banking sector cannot finance this alone. Ideally, from a medium-long term perspective, at least 30-40 percent of the financing needs should be met through capital markets, this is an area we need. Therefore, we will not take an approach that will disrupt the development of capital markets, but we will take an approach that will seriously increase the sanctions regarding market distortion activities, coordinated movements, transactions with insider information, and strengthen the surveillance and control before these sanctions.
First of all, let me say this clearly: we will strengthen the institutional capacity of our relevant institutions. Why is this important? Because the market is very sophisticated, there are very advanced algorithms and movements. We will also need to use these technologies. Therefore, one of our ideas is to strengthen the capacity in these higher boards and strengthen the human capacity and resources. If necessary, we have over 7 thousand 100 inspectors in our tax audit board, if necessary, from wage regulations, that is, from a contracted status in return for staff, if necessary, we have over 7 thousand 100 inspectors in our tax audit board, we will subject a few hundred of our experienced inspectors there to a certain process by law and transfer them to our relevant institutions. Why am I saying this, because we go around and around, there are independent regulatory and supervisory organizations here and their capacity must be very strong. We have a legislative gap and it will be resolved if necessary. Equal pay for equal work appears to have weakened this institutional capacity. Sanctions and measures will be seriously increased.
(Regarding the ÖST side) First of all, let me say this, we have stated from the very beginning that there is no systemic risk in that area, that we have quarantined the problem area and limited the contagion, that the direct effects may be limited and the indirect effects may be some. When I say there is no systemic risk, what I mean is that it is generally not the case that a problem that arises in one or a few institutions or a segment in a certain area of the market spreads and puts the entire economy at risk. Let me underline this once. Now I want to explain this issue. First of all, contagion in banking is almost non-existent. From where? We examined it; our banks' direct risk to these problematic funds is 1.3 billion lira. So let me put it this way, you are talking about an asset of 56 trillion lira, that is, you are talking about 2 per 10 thousand. Therefore, it is not possible for it to pose a risk to the banking sector as of now. Let's give the numbers so that the question marks in the minds of the nation can be shaped. You are talking about 2 out of 10 thousand, the cash and non-cash risk of banks in this area is 2 out of 10 thousand. Similarly, in the real sector, the real sector's interaction with these funds and its risk is only nine out of 10 thousand of the assets. So I want to underline that these are low effects. I do not underestimate the indirect effects. We'll talk about it in a moment. Of course, this funding problem coincided with many other global problems. Therefore, its reflection on the stock market and prices has gone far beyond the reflection of the problems in the normal fund market. Meanwhile, there was some outflow from the funds. Meanwhile, as of this week and Friday, the outflow from them has largely stopped. But to date, the net outflow from the funds is approximately 647 billion lira, nearly half of which, that is, 287 billion lira, is the outflow of foreigners. It happens that in such periods, institutions do not want to act quickly and take risks. Whether this will be a permanent exit or return is a separate issue, but do you know what is the most important issue here? Our Central Bank president also stated that the money coming out of here was transferred to deposits. Look, the increase in TL deposits since September 17 is 685 billion lira. The ratio of total TL deposits to total deposits increased to 62 percent. Therefore, our citizens are, yes, less risky than the risky area. As you know, SDIF guarantees all deposits up to 1.2 million. Yes, there is risk aversion, but that avoidance has also stopped. As far as we can see, the outflow of funds has largely stopped. Let's talk about the private sector bond market. The total size of the private sector bond market is 1 trillion lira. The entire 1 trillion lira portion that will be due by the end of the year is 26.5 billion lira. Therefore, we are talking about an area that has a relatively small place in the Turkish economy. Of course, we have a principled decision that public decision will not be used. As far as I can see, banks and the Credit Guarantee Fund are currently in communication. But we clearly told the Credit Guarantee Fund that, as the Treasury, we will not be a party, we will not allow our resources to be used, we will not give guarantees. However, if you create a credit framework with your own resources for private sector bonds that are not involved in manipulation, not involved in market disruptive actions, and not associated with institutions and companies, we will look at this positively, but I would like to underline this again, there will be no Treasury guarantee, Treasury resources will not be used because the Credit Guarantee Fund has its own resources. It is a process that they will run themselves. This issue is being studied.
Of course, interest in private sector bonds has decreased. These are indirect effects. But I say again, will the Credit Guarantee Fund announce a package with its own resources? That issue is being studied. Let me tell you that too.
We will meet with industry representatives. Of course, we will also work on what can be done in this area to prevent these issues from happening again.
(MSCI's warning) MSCI's statement is quite constructive. It was important for us to give time. Therefore, the demands are extremely reasonable, by the way. These demands are extremely reasonable in terms of a healthy functioning fund market, stock exchange and capital markets. As I have just stated, we will address the issues they stated as problems, they have already been addressed. Look, a very strong step has been taken with the funding guide. There are two issues here, legislation that will increase transparency, an important issue, sanctions, an important issue. But in practice, effectiveness is the most critical issue. These issues will be studied, including how to strengthen the capacity of our relevant regulatory and supervisory independent institutions, and, if necessary, how to ensure timely intervention beyond individual initiatives. And as I said, reliable and permanent sanctions and heavy sanctions are included in permanent regulations. That's why MSCI's statement and the funding issue and all these things overlapped. Let's look at the last 1, 1.5 months together. The American Federal Reserve has increased interest rates, and there is a strong expectation that it should increase interest rates further, meaning financial conditions are tightening. So, you mentioned the foreign outflow in this stock market, of course there is a loss of value, you cannot think of these independently of these. If you look at the entire MSCI index, it is down 4 percent. Look, there is no funding problem there. Secondly, there is a recent outflow from all developing countries. There is risk aversion. Oil prices settled above $100 again. As of yesterday, it was at $108 at one point. So it looks like we found the peak in May again. Now this also has an effect. While it has an impact on the real economy, it has a negative impact on the perception and expectation channels for developing countries, especially for countries that import oil, natural gas and import derivatives. Interest rates in developed countries are at their highest in the last 20-25 years. We're not just talking about the USA or just Europe, we're talking about Japan. All this coincided. So, as you know, the concept of long-term interest rate expectations is a negative concept for the stock markets. Because you look at the values of companies by discounting the future cash flow to today, which is normally what it should be. Here, of course, the internal discussions are as if we have no interaction with the world, we are disconnected from the world, there is only a problem in the fund market and there is a perception that our stock market has lost serious value due to that problem. Let me give you numbers, Egypt of course has no funding problem, the Egyptian market has fallen by 15.2 percent since September 17, Türkiye has fallen by 14.8 percent, South Korea has fallen by 14.1 percent. Again, is there a funding problem in South Korea? No. Now I'm trying to explain this, look, Qatar and Saudi Arabia, you might say, are war zones, but there are countries from Malaysia to South Africa where stock markets have dropped up to 23 percent, with an average of 4 percent. The decline in the stock market in Türkiye during this period was 14.8 percent. I'm talking as of yesterday's closing, since this funding issue came out.
The Turkish economy has proven itself against shocks in the last three years. S&P and Fitch also said that although the whole process is a bit troublesome, ultimately the capital markets will be healthy. Everyone in their right mind says this, the Turkish capital market will be much healthier. They say one calamity is better than a thousand advices.
The value of stocks goes up and down. These are temporary things. What matters is the real economy. I couldn't go to Bangkok, we had a busy agenda here. But I followed Bangkok closely. Could the world react to additional shocks? These were discussed. If you have a loose monetary policy, you cannot react to this.
We can react if there is a serious slowdown in the economy.
Our budget deficit to developing countries is half as low. Our ability to combat the indirect effects of the funding issue on the real sector is quite strong. We increased the credit growth rate of SMEs from 4.5 percent to 5 percent. In fiscal policy, we paved the way for our Ministry of Industry to provide 250 billion TL subsidized loans to manufacturing SMEs. This happened in the last two months.
We created a program between one-third and one-half of market interest rates. We will support employment in the real sector.
The global backdrop has never been more challenging. Even though there is a temporary slowdown, this is seriously disinflationary. We do not underestimate the developments in the fund market. There is no doubt about this. We will not use public resources for funding. But if there is a liquidity problem in the market, we will continue to support the real sector.
