Wolfango Piccoli

Co-President, Teneo Intelligence

Turkey: Capital Controls Not on the Agenda

President Tayyip Erdogan publicly denied on 4 December that the country is considering introducing capital controls, one day after he accused some Turkish businesses of treason for transferring money abroad and called on the Cabinet to take measures to address the issue.

On 3 December, during an address to a local congress of the ruling Justice and Development Party (AKP) in the eastern province of Mus, Erdogan urged the government to prevent the illegal transfer of wealth overseas, without naming any suspects.

Erdogan’s words raised concerns that Turkey was considering introducing capital controls. Today he backtracked, saying “Turkey has a free market economy. Since 1989, everyone who wants to do so has the right to transfer money abroad. There is no doubt that this will continue.”

The introduction in 1989 of what has become known as Decree 32 on the Protection of the Turkish Currency removed restrictions on the exchange and trade in the Turkish Lira. Turkish companies and individuals – including the estimated five million Turks living in Europe – have since been able to transfer money freely in and out of Turkey. Foreign exchange bureaus have proliferated across the country, enabling Turks to hedge against Turkey’s stubbornly high inflation rate by converting some of their savings into foreign currency. Imposing capital controls would not only damage the Turkish economy but would be extremely unpopular politically at a time when Erdogan is trying to consolidate his grip on power in the run-up to the presidential election in 2019.

Nevertheless, Erdogan’s statement on 3 December is an indication that he has become alarmed by what – in the absence of any reliable official figures -- anecdotal evidence suggests is a growing trend for Turkish business people to transfer money abroad, not least because of concerns about the declining state of the rule of law in Turkey. Although Erdogan has ruled out any capital controls, his statement of 3 December will also serve as a warning.

In a country where more than 1,100 companies have been seized by the government over the last 18 months and thousands of people have had their assets confiscated on flimsy legal grounds, those who have already transferred assets abroad or are considering doing so will be aware that there can be a price for incurring Erdogan’s displeasure.