Treasury and Finance Minister Mehmet Şimşek assessed recent developments in the markets during an NTV special broadcast. Şimşek said the developments stemmed from credit and liquidity problems in a limited number of funds and that there was no systemic risk affecting the market as a whole.
Şimşek said there was no structural problem in the stock exchange or fund market, explaining that hedge funds are an area where qualified investors trade globally and are subject to more flexible rules in Türkiye. He noted that Türkiye has 2,038 funds and that the problems concerned 131 of them.
Liquidation process for a limited number of funds
Şimşek said the necessary steps had been taken for a limited number of funds in the hedge fund sector where market-distorting actions had been observed. He said these funds were operated by seven portfolio management companies and that the Capital Markets Board had placed 131 funds into liquidation.
Şimşek said a fund guide containing stricter rules for hedge funds had been announced at the end of August and that the collateral structure would be strengthened after the transition period. He recalled that a regulation requiring money market funds to invest at least 10% of their portfolios in Treasury bonds and bills had entered into force in November 2024.
Şimşek said the Capital Markets Board had announced a comprehensive three-month road map for the liquidation process. He said 90% of the fund market continued to operate soundly and that the funds affected by the latest interventions accounted for approximately 10% of total fund assets.
Şimşek said the measures taken were sufficient at this stage and that the liquidation process would be conducted within the framework of the Capital Markets Board’s appointments and principles. He said he did not expect the process to put pressure on the stock exchange and that measures had been introduced to prevent concentration risk from spreading to other funds and the market as a whole.
New measures for non-bank finance
Şimşek said the non-bank finance sector had grown rapidly in recent years, adding that rapidly expanding areas needed to be closely monitored and protection strengthened in sectors attracting public interest. He said the non-bank finance sector needed rules as strict as those in banking.
Şimşek said the process concerning savings finance companies differed from that involving hedge funds. He announced that Emlak Katılım had launched a process to protect participants in Katılımevim and Birevim and that the approval processes of the Competition Authority, the Banking Regulation and Supervision Agency and the Capital Markets Board would be assessed to complete the process.
Şimşek said whatever was necessary would be done to protect the rights of participants in Katılımevim and Birevim. He added that a protection approach similar to the banking system could be considered for this area in the medium and long term, and that work was continuing on regulations concerning a fund, collateral pool or similar structure.
Assessment of liquidity and market confidence
Şimşek said the likelihood of systemic risk was low but that contingency plans had been prepared for every scenario. He said the Central Bank had indicated that it would provide the necessary liquidity and that the required steps had been taken to prevent a liquidity problem from turning into a credit problem.
Şimşek said the Banking Regulation and Supervision Agency and the Capital Markets Board were fulfilling their duties, adding that there was no confidence problem across the market. He argued that the banking system was strong in terms of capital adequacy, liquidity, asset quality and provisions, and said the increase in risk perception had not been reflected in a rise in credit default swaps.
Şimşek said sales driven by liquidity needs had been observed on September 16 in Treasury bonds with maturities of 2.5 and 10 years, adding that the stress had disappeared the following day and interest rates had declined. He said necessary action, ranging from license cancellations to criminal complaints, had been taken against those engaging in market-distorting activities, and that the next stage fell within the remit of judicial authorities.
Energy prices and inflation
Şimşek said oil prices had been projected at between $60 and $65 when the Medium-Term Program was prepared last year, while the average in current calculations had risen to $90. He said oil was being priced in the $140-$150 range because of multiple supply shocks.
Şimşek said the closure of the Strait of Hormuz had caused a significant shock and that risks to global oil and natural gas supplies had affected the petrochemical and fertilizer sectors. He said attacks on refinery infrastructure and the Russia-Ukraine war had put pressure on finished products such as diesel, with consequences for competitiveness and inflation.
Şimşek said efforts were being made to manage pressure on energy prices through the sliding-scale fuel tax system, but that the system had limits. He argued that inflation could have been at least 7 percentage points lower than its current level if there had been no war, while inflation would have been higher without the measures taken.
Current account deficit and budget balance
Şimşek said the current account deficit could remain below 2% this year but was expected to reach 2.6% or 2.7% because of external developments. He said the 2.6% forecast in the Medium-Term Program was manageable, adding that many criteria had been met regarding the adequacy of reserves and that he saw no concern on this issue.
Şimşek said partial subsidies on diesel and the resulting loss of special consumption tax revenue would continue until the end of the year. He said approximately 400 billion liras in revenue had been forgone because of the measure, reducing the primary surplus and creating a borrowing need.
Şimşek said he saw no problem with the budget balances and that steps had been taken within the limits of budgetary resources to limit the impact of global and regional war shocks on citizens. He said the budget deficit was projected at 3.5% next year and that the interest burden resulting from earthquake spending had influenced the forecast.
Manufacturing industry and employment policy
Şimşek said defense spending had been increased by 229% and the social housing budget by 150%. He said resources would be allocated to various areas, including irrigation and industrial infrastructure, adding that the sliding-scale fuel tax system might no longer be needed if oil prices fell to $76-$77 next year.
Şimşek said the share of medium-high- and high-technology products in exports had increased due to the impact of the defense industry, while labor-intensive sectors remained important. He said manufacturing would receive stronger support through the budget and public resources, selective credit programs and other measures while maintaining the stance of monetary policy.
Şimşek said Türkiye had paid $1 trillion for oil and natural gas imports over the past 25 years, adding that green and digital transformation were necessary to reduce imports. He said priority would be given to programs for people aged 15-29 who are not in education or employment, and that more flexible working arrangements protecting employees’ rights could increase employment and labor force participation.
