Turkey Discards Bill to Use Bonds to Pay Banks in Lira Plan
Turkey Discards Bill to Use Bonds to Pay Banks in Lira Plan
(Bloomberg) -- Turkey discarded a plan to use bonds to pay for banks’ possible losses from a new government tool to bolster the lira.
President Recep Tayyip Erdogan’s governing AK Party voted on Friday to remove the clause on payments in bonds -- instead of cash -- according to minutes of a meeting of the parliamentary Planning and Budget Committee.
Under the now-discarded plan, the Ministry of Treasury and Finance sought approval to issue specially designed bonds to lenders if they lost money from the newly-introduced lira deposits linked to foreign-exchange rates. The goal was to preempt pressure on the Treasury’s cash flow, but the rapid turnaround suggests the ruling party may have faced strong pushback from lenders.
The move was aimed at “eliminating uncertainties” in the form of payments to be made to lenders, Cemal Ozturk, one of the governing party lawmakers who drafted the proposal, told Bloomberg by phone before Friday’s vote on the plan.
Erdogan on Dec. 20 announced a new tool to minimize losses on lira savings during times of currency volatility, which stipulates paying holders of lira deposits the differential if the lira’s decline against hard currencies exceeds banks’ interest rates.
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