Turkey targets gold stashes

March 22, 2012 at 17:03


The Turkish government, facing a bloated current-account deficit that threatens to derail the country’s rapid expansion, is trying to persuade Turks to transfer their vast personal holdings of gold into the country’s banking system.

The push to tap into the individual gold reserves — the traditional form of savings here — is part of Ankara’s efforts to reduce a finance gap that is currently about 10% of gross domestic product.

Government officials say the banking regulator will soon publish a plan to boost incentives for consumers to park their household wealth inside the financial system. Banking executives said they are considering new interest-yielding gold-deposit accounts that would allow savers to withdraw gold bars from specially designed automated teller machines.

The moves come after the central bank in November announced that lenders could hold up to 10% of their local-currency reserves in gold, in part to tempt Turkey’s gold hoarders to deposit their jewelry, coins or bullion at banks.

Economists say the policy shift is designed to change Turks’ historic preference for storing a high percentage of personal wealth outside the banking system as a way to protect themselves against the economic volatility that has periodically hit Turkey in recent decades.

The effort is one front in a broader battle to encourage more savings while curbing the ballooning current-account deficit — a pressure point many investors fear could upend a fast-growing economy, estimated to have expanded more than 8% last year. Turkey’s current-account gap has expanded faster than expected in recent weeks amid a surge in oil prices and data showing unexpectedly high consumer demand.

“Turkey has historically been hit by crises and inflation, so the tradition of holding gold outside the system could be hard to shift,” said Murat Ucer, an economist at Global Source Partners, an Istanbul-based research consultancy.

The size of the gold haul stored outside Turkey’s banking system is hard to quantify; no data reliably capture the scale of the informal economy. The Istanbul Gold Refinery estimates the figure at 5,000 metric tons, valued at $270 billion. Recent numbers show many consumers have boosted home-held deposits even as the country’s tightly regulated banking system won plaudits for comfortably weathering the financial crisis.

Last year, as the Turkish lira tumbled almost 20% against the dollar—the fastest fall of any currency in the world—Turkish demand for gold bars and coins surged 99% from the previous year, according to data from the World Gold Council.

That suggests that despite a tripling of incomes and a sharp reduction of unemployment in the past decade, Turks remain nervous that holding too much of their assets in banks could leave them exposed to losses.

Data also show savings held inside the financial system have declined sharply as the once-volatile economy entered a period of relative stability after a banking crisis in 2001. According to the International Monetary Fund, Turkey’s savings rate last year plunged to the lowest level in the world for any economy larger than $100 billion — except Greece, Portugal, and Ireland — as Turks ramped up personal spending and borrowing.

Some economists warn the government’s initiative is a sideshow, saying policy makers should instead focus on overhauling Turkey’s arcane tax regulation and on boosting public coffers by effectively collecting taxes.

“The government should be focused on the Turkish tax code, but that would mean alienating people, and there seems little appetite to do that,” said Mert Yildiz, an economist covering emerging Europe at Renaissance Capital, a Moscow-based investment bank.

For some Turks, the government will have to unveil a lot more sweeteners before they part with the family gold. “I’m keen to save, so keeping gold at home is easy for me; there is no complicated procedure,” said Ayten Altin, a 70-year-old housewife in Istanbul. “In an emergency I can convert it to cash and I don’t have to wait for the bank to say the asset has matured.