Question marks on Turkey Wealth Fund
The change in management and statements over the leading cause behind this change has turned the Turkey Wealth Fund (TVF) into a current issue again. The most important matter of debate concerns the supervision of the TVF. It’s still not clear how the supervision will be made in a way that will satisfy public opinion. Let’s assume that an audit system of international standards is established and implemented. Even so, the significant question marks regarding TVF are still there. The justification of the law concerning the TVF includes the purpose of “financing big infrastructure projects such as highways, Kanal Istanbul, the third bridge and airport, and a nuclear power plant without increasing public debt”. I didn’t get how it will be possible and why a year ago and I still don’t get it today.
Let me ask this question: How did we find financing for such investments before the TVF was established? The answer is simple: the state budget. In other words, in cases where tax revenue, privatization revenue or revenue earned through public assets are not sufficient, the Treasury was borrowing domestically or from abroad. Second question: What changed with the wealth fund? Some of the Treasury’s sources of income (companies, land and assets it owns…) were transferred to the TVF. Those sources were not financing such projects when they were transferred to the Treasury. It will be the same for the wealth fund and therefore the law says that the TVF will borrow internally or from abroad (this authorization is given to the TVF by several articles in the law). In other words, the Treasury was supposed to borrow to finance to realize such projects and now the TVF will be the borrowing one. The institutions remarking on the Turkish economy were only considering Treasury’s debt, but with this development they will also now consider the debt of the Treasury and the wealth fund.
The reason behind the law was the idea of the TVF to make transactions to break the ice in the financial markets in times when foreign funds tend to leave Turkey. Thereby, it was planned and emphasized for the TVF to prevent the decrease in financial asset prices (or limit the decrease). Now other questions come into play. Wasn’t the wealth fund itself borrowing from abroad? Won’t it be able to pay part of this debt through issued borrowing instruments with the income it will earn from the projects it supports domestically or from projects it coowns? During a financially tense period, these issues over financial instruments would decrease too, wouldn’t they? How will it prevent those prices of such instruments from falling? Will it be buying them from the market? But didn’t it sell them to finance the projects? Or will the TVF have a large foreign exchange reserve and sell foreign exchange immediately to the markets when the foreign exchange rate jumps up during financially tense periods? The answers to these questions lie within the question themselves and they indicate that the TVF won’t be able to realize its noted actions or succeed in case it realizes those actions.