A borrowing scheme that Ankara hoped would help rein in the slump of the Turkish lira and keep interest rates in check has produced a hefty bill for Turkish taxpayers. The scheme, involving domestic borrowing in gold and hard currency, has not only failed to deliver the expected results but also more than doubled the cost the Turkish Treasury would have paid had it borrowed in liras, experts estimate.

While external borrowing has been commonplace, the Treasury would shy away from domestic borrowing in hard currency, a means that had cost it dearly in the years that led to Turkey’s big financial crisis in 2001. The International Monetary Fund, which sponsored Ankara’s recovery program at the time, had also warned against using that means. Under the Justice and Development Party, which came to power in November 2002, the Treasury gradually reduced domestic borrowing in foreign exchange and zeroed it down by 2012.

Yet the risky method made a comeback after President Recep Tayyip Erdogan appointed Berat Albayrak, his son-in-law, as treasury and finance minister in July 2018 as Turkey transitioned to an executive presidency system that concentrated power in Erdogan’s hands. Albayrak, whose economic decisions were often slammed as “the courage of ignorance” by opposition critics, held the post until his controversial resignation via Instagram in November 2020. Using various securities such as gold bonds and gold and euro-denominated lease certificates, the Treasury borrowed lavishly at home under Albayrak, accumulating a domestic debt denominated in foreign exchange equivalent to nearly a third of its foreign debt stock.

The main objective of the Treasury was to lure gold held by citizens into the economy. To shield their savings against inflation and the depreciation of the lira, Turks have traditionally put their money in hard currencies and gold. Such assets are often hoarded at home and are widely referred to as under-the-mattress savings. As the Treasury said on its website at the time, “The under-the-mattress gold [in Turkey] is estimated to amount to at least 2,200 tons ($100 billion). The issuance of Gold Bonds/Gold Denominated Lease Certificates aims to attract those assets to the economy and strengthen the country’s reserves.”

Written by Mustafa Sönmez