Erdogan Denies Capital Controls in Curbing Wealth Smuggling

(Bloomberg) -- Turkey’s President Recep Tayyip Erdogan on Monday ruled out capital controls as he clarified his demand for measures to prevent the smuggling of wealth abroad by unnamed businessmen he branded as traitors.

“I gave no demand or instruction to restrict the movement of capital,” Erdogan said in a televised speech in Ankara, a day after he urged the government to prevent the illegal transfer of wealth overseas. “Turkey has a free-market economy, anyone has had the right to take their money abroad since 1989,” he said. “There is no doubt this will continue.”

The lira was buoyed by his declared commitment to the free movement of capital and support for Turkish firms operating overseas. On Sunday, the president generated jitters by saying in a televised speech that “we don’t look favorably upon those who are making money in this country and attempting to smuggle their wealth abroad.”

Although Erdogan has ruled out any capital controls, his statement on Monday will also serve as a warning to businesspeople, said Wolfango Piccoli, co-founder of Teneo Intelligence in London.

The president’s remarks indicate “that he has become alarmed by what -- in the absence of any reliable official figures -- anecdotal evidence suggests is a growing trend for Turkish businesspeople to transfer money abroad, not least because of concerns about the declining rule of law in Turkey,” Piccoli said in an email.

Erdogan’s equation of wealth-smuggling and treason, first made on Sunday, builds on his allegations of an international conspiracy against his government, more than a year after a coup attempt.

A Turkish banker is on trial in New York, charged with helping Iran to evade U.S. financial sanctions, while some of the president’s relatives have been accused by the country’s main opposition party of transferring millions of dollars abroad. Erdogan has denied the allegations against his family members as “slander.”

Outflows Slow

At a time when Turkey is facing attempts to pressure it economically “along with other attacks, our businessmen should adopt a national stance,” Erdogan said Monday. “I have no word for those who are doing trade or taking their resources abroad for investment.”

Turkey’s foreign direct investment outflows slowed to $1.83 billion in the first nine months of 2017, set for the lowest annual pace since 2010, according to central bank data. Outflows reached a record $7.05 billion in 2014. Turkish businesses invested more than $40 billion abroad over the past year, Erdogan said.

Since the coup attempt, the government has been using incentives, tax breaks and fiscal stimulus to support economic growth, which is expected to be the fastest in the world in the third quarter. Still, many see Turkey’s market as saturated, cluttered with red tape and expensive for acquisitions. Turkish companies may spend a further $64 billion on overseas acquisitions and setting up new operations abroad by 2023, Volkan Kara, a partner in Bain & Co.’s Turkey office, said in a recent report.

Deputy Prime Minister Mehmet Simsek assured businesspeople that restricting capital flows has not been on the government’s agenda.

“As our president has announced today, Turkey is a fully liberal country from the perspective of capital flows and will stay that way,” Simsek said. “While keeping regulations on capital flows in harmony with global best practice, Turkey will also continue decisively its fight against terrorism financing and flows of black money.”

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