HAKAN GULDAG & ALI AGAOGLU
Turkey managed to get out of the “grey list” of the Financial Action Task Force (FATF), which prevents capital inflows to Turkey, blocks investments and negatively hinders the country’s welfare, after a great effort and struggle.
Economist Ali Agaoglu and journalist Hakan Guldag discussed the impact of the FATF’s decision last week to remove Turkey from the Grey List, on the markets. Turkey has been on the “Grey List” since 2021.
This week in Şans Sohbetleri, the weekly online program on EKONOMİ Daily’s website and YouTube Channel, Agaoglu and Guldag discussed how the exit from the grey list will reflect on the markets and discussed the new trend that will come to the fore after the grey list decision.
Guldag: Turkey is off the grey list. It is positive. It may not have an immediate impact on the markets, but it has made it easier for companies and banks to borrow. Excuses have decreased.
Agaoglu: Being on the grey list was a bad thing for all of us. Some funds cannot invest if these countries are on the grey, dark grey or black list. It has nothing to do with the rating.
Guldag: There are open-secret rules before the rating. What I call hidden are the economic policies of modern times. Just like China imposes high taxes on automobiles. Because the automotive industry in Germany and France is falling apart. Employment is ending. But the justification is different. For example, “the carbon footprint of vehicles coming from China is too high”.
Agaoglu: They could not visit Turkey at all due to regulatory constraints.
Guldag: Those who went to invest were told, “You are using my payment systems, be careful!” Every business has overlords who cut the rules.
Agaoglu: Since we are no longer on the grey list, we are now included in the list of countries where investments can be made. This is unquestionably a good thing.
Guldag: What will be the effect on the market?
Agaoglu: Being given money is not an issue that will directly affect us. It is not an issue that will move the stock market up and down by 10 percent. We will feel its effects over time because now there is the possibility of investment.
Guldag: Well, we have also raised the crypto law on this occasion…
Agaoglu: That is the second good news. We became one of the first countries to register digital assets. Turkey is the fifth biggest actor in the cryptocurrency world. It has a very serious investor. Even if not at the moment, it has paved the way for generating income in terms of tax in the future.
Guldag: Bader Aslan wrote well about this grey list issue in the ’10 questions’ section of the ‘Direction of Money’ magazine. The technological fight against black money is also very important.
Agaoglu: As for the stock exchange, when it was removed from the list, it may have been a development in accordance with the principle of ‘buying expectations, selling realizations’.
Guldag: I think we are no longer ‘cheap’ on an index basis. The dollar stands where it stands against the TL. The value of the stock market in dollar terms is also rising.
Agaoglu: We went from 2.45 to 3.44 dollars last month. There was a 40 percent increase in value in dollar terms. Now, I think some of the foreign investors who see this are looking for profit. In such a short term, they are looking to pocket a very good return in dollar terms. Where there is good news, you can sell a large amount of goods.
Guldag: There was a lot of selling. Although there was not a very big inflow into the stock markets.
Agaoglu: It is clear that we are not as cheap as we used to be. But foreigners don’t come to the stock market immediately. They come to interest markets first. Against the uncertain return of stocks in the stock market. And they did so.
Guldag: So, what will be our story in the stock market from now on?
Agaoglu: The historical peak of our stock market is 5.1 dollars. I don’t expect it this year. But the story that will take us there will surely be the slow expansion of the swap channel.
Guldag: But first to bonds…
Agaoglu: They need to come to the money markets first. After they pick the strawberries on the cake, they will come to the stock market when they move on to the icing of the cake. But our local investors thought that ‘foreigners will come to the stock market quickly’ and bought in advance. When they did, prices went up in dollar terms. There will not be much demand for the stock market of a Turkey that cannot write a new story.
Guldag: The story continues with Moody’s assessment on July 19. A rating increase is highly likely. It was already two notches below both Fitch and S&P.
Agaoglu: But the uncertainty of the tax package also hinders inflows.
Guldag: They extended the parliament for a month. By July 31st, they will get it done, one way or another. This time, the tax proposal is likely to be around 50 articles. It won’t take much time.
Agaoglu: Since we Turks see everything as very short-term, we have no patience. We want it to happen immediately. But it will not be like that. For example, I have bad news for those who are talking about interest rate cuts. While electricity and natural gas are rising, talk of interest rate cuts makes my ears prick up. I think the Central Bank will hold for longer.
Guldag: You should still prepare for interest rate cuts starting in September, as long as no one talks out of the blue. Leave it to the Central Bank.
Inflation may fall below 2 percent in June
Guldag: What do you expect June inflation to be on a monthly basis?
Agaoglu: It could be 2.2 percent. That is what the market expects. I also expect…
Guldag: It may stay below 2 percent. Let’s call it a journalist’s intuition. There will be a break in inflation this summer. There is no other solution. It would not be good for this to drag on. We will see annual inflation in the 60s in July and below 50 in August, with a strong probability. Then it will go down to 45, 43, 41. Below 40 is possible at the end of the year. When we see 45 in September, the interest rate cut will start. If it is not on the agenda in August…
Turkey was on the list after 30 years
FATF is an organization established in 1989 by the Organization for Economic Co-operation and Development (OECD) to prevent money laundering, terrorist financing, and the financing of weapons of mass destruction.
More than 200 countries worldwide have committed to complying with the FATF recommendations. Turkey became a member of the organization in 1991 by accepting the FATF recommendations. In this context, the Financial Crimes Investigation Board (MASAK) was established under the Ministry of Finance in 1997 to collect data on the prevention of laundering proceeds of crime and financing of terrorism from financial and non-financial institutions, to receive and analyze suspicious transaction reports, and to conduct or have conducted detailed investigations when necessary.
Three times a year, FATF announces the countries that fall short in the fight against money laundering and terrorist financing (Anti Money Laundering & Counterterrorist Financing – AML/CTF). As a result of the assessments made, if it is concluded that countries have deficiencies in combating money laundering, financing of terrorism, and financing of the proliferation of weapons of mass destruction, countries that commit to eliminating the relevant deficiencies by taking remedial actions are included in the “gray list”, while countries that do not agree to comply with FATF recommendations (Iran and North Korea) are followed in the “black list”.
Countries that agree to comply with the FATF recommendations but do not have sufficient legal arrangements, structural reforms, and monitoring mechanisms to address in detail the nature of the transactions in the commercial activities to which they are a party are followed in the Gray List.
