There is no risk involved in Turkey’s unemployment insurance fund buying Turkish lira (TRY) 10.9bn ($1.8bn) of debt instruments issued by three banks last week, spokesman for Turkish President Recep Tayyip Erdogan, Ibrahim Kalin, said on October 3.

“Public funds have been used in different ways from time to time. Similar transactions took place last year,” Kalin told a press conference.

The TRY has weakened against the USD by around one-third in the year to date. The currency came under renewed pressure on October 4, declining 1.7% d/d versus the dollar to 6.1524 by around 14:00 local time, partly as a result of the soaring US dollar impacting emerging markets that have borrowed heavily in the greenback. The acute struggles of the TRY have raised concern about the capital buffers of Turkish lenders. The banks have previously issued subordinated notes to strengthen their capital.

Kalin spoke after questions were raised about an article by independent economy columnist Ugur Gurses, which outlined how the unemployment fund bought the debt instruments issued by Vakifbank, Halkbank and Eximbank.

“The public sector can take steps to use its own resources. This is a step to use public funds more efficiently, there is no risk involved,” Kalin said, according to Reuters.

State lender Vakifbank sold TRY4.99bn worth of fixed-rate tier-1 notes, Eximbank sold TRY2.90bn of debt while Halkbank sold TRY2.98bn of tier-2 subordinated notes with a 10-year maturity. All three issues were sold via private placements and the yields were not announced.

Assets of TRY125bn
The unemployment insurance fund, established in March 2002 and funded by mandatory contributions from employees, employers and the state, had TRY125bn in assets at end-August, state-run Anadolu news agency said.

The Turkish banking sector’s capital adequacy ratio stood at 17% at end-August, according to banking watchdog BDDK data.

Analysts are watching closely for the Erdogan administration following through on any advice it receives from Wall Street international consultancy firm McKinsey & Company. Though the Finance Ministry has refused to countenance any idea that it should turn to the International Monetary Fund (IMF) to help steer it out of dire economic straits, it has hired “The Firm”, as the “blue-blooded” McKinsey is sometimes referred to,

McKinsey is specifically working with the government’s Cost and Transformation Office established under the scope of Turkey’s new three-year medium-term economic programme unveiled by Albayrak on September 20.

Ankara is battling to convince the markets that Turkey has a grip on the country’s economic turmoil, with market analysts anxious that too many wrong steps could cause the country’s currency meltdown to morph into a banking crisis. Ankara has also dismissed the idea that it might be forced to bring in capital controls, while it has indulged in directing “economic war” rhetoric at US President Donald President, accusing him of employing financial attacks to divert Turkey from its “native and national policies”.