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Ill-conceived borrowing scheme costs Turkey double

The cost of Ankara’s domestic borrowing in hard currency and gold is estimated to have hit nearly 32% per annum amid the slump of the Turkish lira, more than doubling the cost of borrowing in liras.
A man counts Turkish Lira at a currency exchange office on July 29, 2020, in Istanbul, Turkey.
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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.

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