Sabri wrote:
You need to distinguish between the Turkish Treasury and the Turkish Central Bank:
Well, formally at least, both treasury and central bank are agencies of the same principal. I don't know how the Turkish treasury (TT) and central bank (TCB) split their functions, but suppose TT is occupied with making two kinds of decisions: (1) how to allocate public funds and (2) how to finance them (taxes or debt). And suppose TCB is occupied with the stability of the domestic currency, either with respect to domestic prices *or* with respect to the value of currencies of main trade partners. I mean, the central bank's actions affect (2) via seigniorage and a possible inflationary tax -- but suppose the levels of both are constant. Now, if I understand you well, you're suggesting to have TCB help TT with (2) by picking up some of TT's Eurobond issues. Instead of demanding U.S. official debt, which helps lower the USD yield of U.S. debt, you propose demanding domestically-issued Eurobonds, which lowers the USD yield of TT's Eurodebt. Since both are USD rates, your argument is about reducing spreads or -- more properly -- the premium paid by TT so that the rate is as close to -- say -- the LIBOR as possible. Since the TT already owes 35b in Eurobonds and TCB holds 50b in US treasuries, you imagine that TCB could by itself hold all TT's Eurodebt and give TT a break by charging, say, only the LIBOR. The premium would vanish and the principal would benefit in net terms. Well, the premium doesn't vanish! It is pocketed by TT *at the expense of TCB*. Unless you have *very good* information to second-guess a huge, extremely liquid, extremely active market with highly sophisticated participants. You'd be implying that the market for U.S. public debt and Eurodollar debt is acting stupid. That is not impossible, but to challenge that market you may need to either make them see your point soon enough or have very deep pockets. The central bank of a mid-size country like Turkey may or may not have that kind of power. I guess it depends. However, if there's no reason to believe the market is being less smart than we are, then TCB would be getting the short end of the stick. The risk involved with TT's Eurodebt is significantly higher than that of holding U.S. treasuries. Period. The premium TT doesn't pay, TCB doesn't collect. If both are agents of the same principal (as they are supposed to be in the legal and political fiction of Turkish democracy), then the principal's net worth is left unchanged by all this financial maneuvering... Unless you are arguing -- and this is a plausible argument -- that, in fact, TT and TCB are not agents of the same principal! That, in fact, TT being more directly influenced by popular mobilization, TT is more of a representative of the people of Turkey. TCB, on the other hand, is more representative of the interest of foreign capital. Thus, taking from TCB to give to TT is a net benefit for the people of Turkey -- the underlying reasoning being that the people of Turkey doesn't have the political clout to put TCB under its democratic control for the time being, while TT can be influenced more easily with the political resources at hand. Is this your reasoning?
