Intention and fortune in KKM


The most effective instrument in the instability period caused by the hike in FX rates and inflation due to the Central Bank’s (CB) policy rate cuts has been the FX-protected TRY deposit account (KKM). Rabbits pulled out of a hat following the introduction of KKM haven’t been that influential.

Almost all efforts to stop the results instead of measures and policies towards the root of the matter in the policy rate cut and instability period have been implementations that have created other problems or results opposite of their purpose.

The CB’s latest rate cut and credit management regulations for banks won’t be different from previous implementations.

Treasury and Finance Minister Nureddin Nebati accused those who criticized KKM and found it wrong of gloating.

►KKM ended the instability and uncertainty in FX rates caused by government spokespeople’s statements which escalated the markets towards the end of 2021. The FX bubble was already the result of political statements.

►The KKM couldn’t stop the upward trend in FX rates. FX rates have had an upward trend following an initial decline. FX rates had a horizontal course at times. This was artificially achieved by FX sales through the back door at the cost of a decline in FX reserves.

►Policies couldn’t provide FX inflow to Turkey. The CB reserves were consolidated with FX in legal and real persons’ accounts. The net reserves remained negative due to ongoing FX demand in Turkey and the surge in the current account deficit. It raised the risk of the balance of payments.

►KKM couldn’t provide ‘liraization’ as its return relies not on TRY interest rate but FX rate hike. Existing dollarization was camouflaged by TRY. The actual dollarization increased as TRY deposits can be shifted to KKM.

►Over TRY 60bn was paid from the budget for KKM in seven months. The FX difference is paid by the Treasury for the shift from TRY accounts to KKM and by the CB for the shift from FX accounts to KKM. The CB doesn’t release the payment figures. But the CB paid at least TRY 80bn, according to some experts. The 7-month total cost reaches TRY 150bn when we add the tax advantages for companies’ shift to KKM.

►Let’s compare TRY 150bn with some budget sizes to understand what it means for the public. KKM expenditure is an item under the title of ‘Transfers to households and enterprises’ in the budget. The annual fund appropriated for this title totals TRY 189bn with the newly increased budget. One-third of the amount was spent alone by KKM in seven months. The support for the agriculture segment totaled TRY 23.6bn, the amount paid for all workers in the public totaled TRY 23.5bn, and goods and services purchases for government services including defense and security amounted to TRY 96bn in this period.

►Moreover, there is no exit strategy for KKM. No one knows how markets are controlled if KKM should end one day.

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