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[OPINION] Commonwealth of Erdoğan: Milking Public Enterprises Through Turkey Wealth Fund


Sovereign Wealth Funds

“The funds diverted from 1MDB were used for the personal benefit of the co-conspirators and their relatives and associates, including to purchase luxury real estate in the United States and overseas, pay gambling expenses at Las Vegas casinos, acquire more than $200 million in artwork, purchase lavish gifts for family members and associates,… 1MDB maintained no interest in these assets and saw no returns on these investments…”

The above findings are quoted from the plaintiff brought by the U.S. Attorney to the court to forfeit assets involved in and traceable to an international conspiracy to launder money misappropriated from “1MDB” which is now the focus of money-laundering probes in at least six countries.

1MDB here stands for “1Malaysia Development Berhad”, a Sovereign Wealth Fund (SWF) wholly-owned by the government of Malaysia. From the file, we also learn the original mission of 1MDB: “to pursue investment and development projects for the economic benefit of Malaysia and its people.” This case may give an insight into how SWFs with low transparency and accountability could serve to fuel astonishing greed of rulers and their relatives.

SWFs, especially from the start of the 21st century, have come to be seen as an important investment tool to ensure better utilisation of economic surpluses of countries. Employing these surpluses strategically, a SWF can be able to invest in a broad spectrum of assets including airports, energy, finance, real estate, equity markets, and so forth. SWF assets -and the returns they generate- can have a significant effect on public finances, monetary conditions, external accounts and balance sheet linkages with the rest of the world (IMF, 2013).

According to “2017 Sovereign Wealth Fund Review” of Preqin, a private data provider currently tracking 76 active SWFs, their total assets reached $6.59 trillion in March 2017.

International Working Group of Sovereign Wealth Funds (IWG) [International Forum of SWFs (IFSWF) since 2009] defines SWFs as “special purpose investment funds or arrangements that are owned by the general government. Created by the general government for macroeconomic purposes, SWFs hold, manage, or administer assets to achieve financial objectives, and employ a set of investment strategies that include investing in foreign financial assets.”

In literal terms, SWFs are large pools of savings that can be used for a variety of investment purposes, both within and outside the owning state (Backer, 2015). Regardless of the governance framework, a particular “saving” must be available to establish such an entity.

SWFs are diverse in their origins, objectives, and investment strategies. In operational sense, they generally take the form of state-owned corporations with distinct legal persona. The term “sovereign” refers to the fact that asset owner is not a private corporation, but a sovereign government. SWFs gather typically one or more of the following national assets from which the saving comes:

  1. Revenues extracted from a particular natural source such as oil and gas,
  2. Excess foreign exchange reserves and budget contributions,

As for the main objectives of SWFs, IMF (2013) identifies five categories: (1) stabilization fund, (2) savings fund, (3) development fund, (4) pension reserve fund, and (5) reserve investment company. These objectives, however, can be best achieved in practice by directly associating them with governance structure, investment strategy, and transparency requirements.

Despite the rhetorical flourishes and good intentions with which it was created, SWFs have not produced much wealth to peoples of the owner states. Today, leading concern to which SWFs give rise is mismanagement of investments and corruption including money laundering, bogus transactions, and funding lavish lifestyles of a small group at the top. This is especially the case for the SWFs established in developing countries where the biggest weaknesses are with respect to accountability and associated transparency.

Against the boom of SWF affairs with corrupted forms, the U.S. Department of Justice (DoJ) announced in 2008 that investigations into passive and active investments involving SWFs were “at the top of the Justice Department’s hit list” (Cornelius, 2008).

Consequently, in an IMF-sponsored conference in Santiago of Chile, IWG introduced a voluntary set of “Generally Accepted Principles and Practices” (GAPP) concerning the governance, accountability and investment operations of SWFs. Thus, the rules of game surrounding their activities have been codified within the Santiago Principles of October 2008.

Although Santiago Principles have a “voluntary” character and are not internationally binding, a higher compliance with its GAPPs is recognised a prerequisite for entry into U.S. and European markets. To this end, C. Linaburg and M. Maduell, under the sponsorship and publishing of the SWF Institute (SWFI), developed an index which is known as the Linaburg-Maduell Transparency Index (LMTI).

The LMTI rates transparency based on the analysis of satisfaction of 10 fundamental principles by the SWFs. The scoring of each point of the index results in one point and the ranking goes from 0 to 10. SWFI recommends that a SWF must have a minimum value of “8” to be considered adequately transparent. The LMTI therefore serves as a standard global benchmarking tool. SWFI publishes the LMTI ratings in its website on quarterly basis.

Since 2008 therefore, both U.S. DoJ and SEC (Securities and Exchange Commission) have intensified their spot lights over the SWFs’ activities for possible violations of the “Foreign Corrupt Practices Act.” It is highly crucial when SWF employees use the American financial system for corruption as “The Foreign Sovereign Immunities Act” does not grant any immunity to government officials working on behalf of a foreign state.

Of course, the above considerations do not necessarily imply that SWFs would not contribute to overall growth level and financial diversity in quest of source, but simply that they do not comprise an adequate response to increasing economic stress in a country with no “surplus” in economic sense. For a country, amount of surplus produced is a crucial determinant of many other aspects of the economy and social system of a people.

A staple economy requires investment in “productive” activities rather than unviable vanity projects which are much associated with “rent-seeking” activities as the case in Turkey. We therefore suggest, when intelligently used, SWFs may contribute positively to this end and macro-finance policies of governments.

But the opposite may also be true: SWFs may play a role in transfer of national assets to the pocket of ruler and his collaborators and thus turns to be a predatory device. To see how such a thing occurs, we try to analyse here the conditions under which “Turkey Wealth Fund” was established and legal framework under which it operates.

Turkey Sovereign Wealth Fund (TWF)

When the Law no. 6741 on the “Establishment of Turkey Wealth Fund Management Joint Stock Company” (“TWF” or “Company” hereinafter) was introduced on 19th August, 2016, just one month after the failed coup of 15th July, it was hard not to notice that significant amount of the governmental revenue would make its way into the hands of Erdoğan. Then, let us have a look how it may come true.

As is known, most SWFs have been established in countries that are rich in natural resources, with oil-related SWFs being the most common and largest group. These include the funds sponsored by the Arab Gulf countries, Russia and the ex-Soviet republics, Malaysia, Brunei, and Norway. A newer set of funds has recently been established in response to discoveries of major new resource endowments particularly natural gas, but also oil, coal, diamonds, copper, and other minerals. A second important group of SWFs includes those financed out of accumulated foreign currency reserves resulting from persistent and large net exports, especially the funds based in Singapore, Korea, China, and other East-Asian exporters (Bortolotti et. al, 2014).

From this angle, a “third way” seems to be incompatible, at least with the generally accepted definition of the SWF. So, as seen from the following figure, SWFs rely on the reserves saved from either commodity (hydrocarbon or other) or non-commodity (foreign exchange) assets, nothing else.

However, as the 32nd member of the IFSWF, TWF represents the third way by source of capital. Such SWFs could then be labelled a “wealth fund without the wealth” as they are emerging in countries with large deficits and deep debt (Milhench, 2017).

In lack of any surplus reserve or advantageous revenue resource, TWF was founded with an enterprise capital of 50 million Turkish Liras which was paid by the Privatization Fund. The source therefore comes from the key Turkish public assets which are among the largest in Turkey. And the Company, pursuant to the article 1(1) of the Law, will manage those assets in order to;

  • contribute to the diversity and depth of the capital market instruments,
  • bring the public assets of the country into the economy,
  • provide foreign resource,
  • participate in strategic, large-scale investments.

The latter was notably emphasised by the government spokesmen with reference to ongoing projects such as airports, seaports, roads, and railways most of which are undertaken by AKP-sided contractors, and unviable “vanity projects” like Channel Istanbul.

Article 4(1) of the Law assigns the TWF to keep the following revenue resources:

  • The institutions and assets which fall within the scope and program of privatization and decided by the High Board of Privatization to be transferred to the TWF and cash surplus decided by the High Board of Privatization to the TWF,
  • The surplus income, resources and assets which are in the possession of public entities and institutions within the public sectors and which are decided by the Cabinet to be transferred to the TWF or managed by the Company,
  • The funds and resources which are provided from national and international money and capital markets by the TWF without seeking for the permissions and approvals stated in the related legislations, and
  • The funds and resources provided through other resources in addition to the money and capital markets.

Subsequent to these provisions, as of today, we have a long list of the national assets which have been transferred massively to the TWF’s property.

The first 11 rows of the above table shows the list of the companies transferred by the Cabinet Decree no. 2017/9756 dated 24th January, 2017 while the latters in italic were transferred by the High Board of Privatisation on 03.02.2017. Unusually, decisions concerning these transfers (No.2017/3-4-5) were published neither in the Official Gazette nor the website of the Privatisation Administration.

Various immovable properties in 46 land plots belonging to the national estate in Antalya, Aydın, Isparta, Istanbul, İzmir, Kayseri, and Muğla, amounting 2.292.815 m2 in total, were also transferred to the TWF by the Cabinet Decree no. 2017/9756.

Within the Cabinet Decree no. 2017/9758 dated 24th January, 2017, a cash amount of 3 billion TL ($807.000.000) belonging to the “Defence Industry Support Fund” (DISF) was transferred to the TWF for a three-month usage.

Decree Law no. 680 of 02.01.2017 transfers all the licenses of winning games operated by the National Lottery (article 82), and license for horse racing of the Turkey Jockey Club including relevant facilities for a duration of 49 years as from 1st January, 2018 (article 77) to the TWF.

Thus, TWF, has become a fund with $6,3 billion of equity capital and approximately $200 billion of asset size plus large number of real estate and licenses generating high revenue with almost no cost. The above transfers to the TWF cannot be considered as a simple transfer of the ownership or usage, but of “property” in legal sense. Article 5(1) of the Law reads that all the assets and rights are to be registered by relevant authorities on behalf of TWF’s legal entity. Not revenue stream, but the whole company!

As we underlined above, SWFs are generally used by countries with large external surpluses generated from natural resources like oil or gas. TWF, however, is owned by the Turkish government operating no such a surplus, but dealing with chronic budgetary deficits. Therefore, it is normal to see that the above list does not refer to any saving or surplus in economic sense and TWF’s resources to be consisted primarily of non-liquid assets.

Thus, TWF can be considered as the first in its kind as a fund grabbing state-owned real and financial assets in lack of any budgetary or commodity saving.

From an optimistic point of view, as the article 2(3)/a of the Law implies, some of TWF assets can be expected either to be sold, to generate cash or to be used as collateral to secure much needed funding, especially for heavy-cost infrastructure projects. But, instead of TWF, both could be achieved in practice by the Privatisation Fund and/or Treasury borrowing, more or less, in a fair, transparent, and auditable manner. There would be no need to deviate from the principle of “Unity of Treasury” if the original intention was to utilise national assets as a rainy day fund for the short term.

Then, let us connect the dots: contrary to that of the Privatisation Fund, in release of public assets, what “safety” TWF provides is exemption from the audit of Turkish Court of Accounts (TCA), a constitutional auditing body operating on behalf of the parliament, as well as competitive tendering procedures applied.

That is to say, since the article 8(5) of the Law no. 6741 immunes the TWF and the Company from the audit of TCA, procedures of the Law no: 4046 on privatisation, if you deemed politically correct to make one of your guys owner of any public asset, to be on the safe side, you transfer it to the TWF and then TWF, with no competition, no audit trail, even no due diligence, delivers it directly to this guy.

On the other hand, it is also not clear how TWF will succeed in its objectives relying on these assets. As Dedeoğlu (2017) rightly highlights, it is uncertain how exactly large companies’ and state-owned enterprises’ shares would be used to create funding as the companies concerned, with the exception of Turkish Airlines, are not listed in the stock exchange. Their shares are not traded, and thus these companies do not have market prices. They are not subject to international audit or rating. Therefore, a proper securitisation seems not to be possible, at least in short term.

It is very obvious that a portfolio based on such shares does not attract foreign professional investors, but is likely to increase political control over the companies. Therefore, direct releases to domestic “entrepreneurs” in a discretionary manner seems to be the most possible way the government stays on. That is, however, financially modernised form of the “predatory state”.

In parallel to this, article 3(1)/ç of the TWF Internal Regulation designates fund generation from “non-equity and out of financial market resources” pointing to reliance on some doubtful transfer. Given these provisions, one can talk about money laundering or illegal cash transfer.

As it is demonstrated above, TWF lacks main advantages of other SWFs and heavily relies on consuming the existing reserves (expenditure) instead generating financial payoffs and/or reserving incomes for future generations (saving). Expenditure through TWF mechanisms, however, ultimately results in simply unaccountably disappearance of huge sums of national resource from government coffers.

Therefore, typical terms like “parallel budget” or “off-budget account” do not and cannot explain the nature of a SWF with such traits. However, in both Turkish media and academia, less attention has been devoted to understand this particular characteristics of the TWF, so many has focused on how TWF may create a funding vehicle by leveraging up public assets or whether it is expected to assume some budgetary and Central Bank functions.

Of course, public assets can be utilised as a funding vehicle provided operations are transparent, auditable, and involving officials remain accountable. We then should much focus on the governance framework and audit of the TWF operations with a focus to some core GAPPs of the Santiago Principles.

Governance Framework

Even as it begins to operate, TWF has also begun to be mired in accusations of corruption. Main reason was directly associated with how it is set up in governance terms. The tone adopted by the Law no.6741 making less reference to the reporting, accountability, and transparency requirements was also a cause for concern in this respect.

As referred above, SWFs are supposed to adhere to the Santiago Principles. We learn from the IFSWF that TWF also voluntarily agrees to uphold the GAPPs as a prerequisite for membership.

At first, GAPP-1 refers to a “sound legal framework” supporting SWF’s operation and the achieving its stated objective(s). When the provisions of the Law is scrutinised, it is very hard to find a “soundness” concerning the relationship between the TWF and other state bodies like Treasury, Ministry of Finance, Central Bank, Capital Market Authority, and Istanbul Stock Exchange of which the head occupies one seat in the TWF’s board of directors.

In the latter especially, as the Treasury’s share of 73.6% was already transferred to the TWF, it remains uncertain how potential conflict of interests/roles to be avoided. This picture is clearly incompatible with GAPP-1. So, ultimate objective of the SWFs can only be achieved if they are managed within a sound governance structure and with appropriate investment strategies (IMF, 2013).

As associated with the above criteria, GAPP-16 also requires publicly disclosure of the governance framework and objectives as well as the manner in which the SWF‘s management operates to be “operationally independent” from the owner, i.e. the government.

TWF, despite its separate entity, is structured under the Prime Ministry and is operated by the Company with a board of directors consisting of minimum five members and president and general manager all of who are appointed by the Prime Minister. Secondary legislation concerning the operational rules and procedures of the Company is decided by the Cabinet in the form of the “Government Decree” while TWF’s Internal Regulation is foreseen to be issued by the Company itself.

When it comes to the management of the assets hold by the TWF and its sub-funds, article 3(2) of the Law requires “A 3-Year Strategic Investment Plan” to be the norm. This plan is prepared by the Company’s board of directors and is put into force with the Cabinet approval. However, no indication is found therein about whether the plan would be a “budget-supporting” tool despite GAPP-3 asking SWF activities to be closely coordinated with the domestic fiscal and monetary authorities, so as to ensure consistency with the overall macroeconomic policies.

As an evidence of the above concerns, amid discussions and rumours concerning the best possible direction of the Strategic Investment Plan, founder head of the TWF, Mehmet Bostan, was dismissed on 7th September, 2017. Recent news in press has revealed that, it was a result of strategic disputes over TWF between the President Erdoğan and Prime Minister Yıldırım.

This case even demonstrates that TWF itself can be a cause of conflict within the government when it comes to the role it would play in economy. Because of such a conflict, TWF’s strategic investment plan which was sent to Prime Minister’s office on April 10 has not been approved yet. This may negatively affect operability of the TWF and makes it inactive until the time the dust settled.

As can be seen, this organisational framework adopted by the Law no. 6741 does not leave any room to consider TWF having a substantial, or at least operational, autonomy from the government, nor is its funds well protected from use by the government as it needs them for short term projects or to make up budgetary shortfalls.

Regardless of the governance framework, the operational management of an SWF should be conducted on an “independent” basis to minimize potential political influence or interference that could hinder the achievement of the SWF’s objectives (IMF, 2013).

Operations and Investments

With regard to the operations of TWF and sub-funds, Internal Regulation of the TWF was published in the Turkish Trade Registry dated 30.01.2017. This was followed by the TWF decision of 10.04.2017 concerning the establishment of four sub-funds: (1) Market Stability and Equilibrium, (2) SME Financing, (3) License and Concessions, and (4) Mining.

With the exception of the “Market Stability and Equilibrium”, other sub-funds are foreseen to be operated under the title of the “Market Depth and Equilibrium.” It is unknown what the added value of this differentiation is.

Regulations governing the sub-funds were also published in the Turkish Trade Registry dated 1st June, 2017. It is understood from the regulations with similar content that, despite different titles, all sub-funds seem to be tasked with some speculative operations in stock markets.

To this end, according to the article 4 of the TWF’s Internal Regulation, “participation shares” will be issued on the basis of the revenues, sources and assets of the TWF. These certificates comprising the portfolio of the sub-funds are foreseen to be invested in the assets and transactions listed in their regulation, for example, money and capital markets instruments, public borrowing instruments, gold and precious mines, and so forth.

As discussed above, this base represents the darkest side of the operations assigned to sub-funds. So, it is well known that, in lack of any proper market price, independent audit, and rating for the TWF assets most of which are state-owned enterprises not listed in the stock exchange, associated “shares” are incapable of attracting professional investors.

Moreover, neither TWF nor government spokesmen has disclosed any information to the public on the progress that had been achieved so far. Let us clarify: who are the entrepreneurs invested in the shares concerned? What about the size and value of the shares sold so far? What is the last updated portfolio of the sub-funds? Was 3 billion TL paid back to the DISF when 3-month period expired and what is the return?

Such questions do not accommodate any accusation but fall under the GAPP-17: “Relevant financial information regarding the SWF should be publicly disclosed to demonstrate its economic and financial orientation, so as to contribute to stability in international financial markets and enhance trust in recipient countries.”

Of course, real estates and game licenses can easily be priced comparing to the companies, but this remains instrumental only for selling these assets to investors without any further income stream. Moreover, article 11(j) of the Internal Regulation accepts the expenditures like commission or brokerage fees as eligible if they are paid for “selling/buying and leasing transactions concerning real estate investments.” Such is also the norm for the sub-funds’ operations.

Under these circumstances, how the signals given by these regulations should be interpreted? The following may be the answer that suits best to the corrupted conditions under which Erdoğan regime survives: This is clearly an open invitation to the “entrepreneurs” seeking opportunities of money laundering, or alternatively, these bogus shares will be used to import some cash amount of Erdoğan family and its associates into Turkey. You then remember article 3(1)/ç of the TWF Internal Regulation allowing transfer of funds out of money and equity markets.

Here, let us come to the critical question: how TWF, as a wealth fund seeded with public assets, would make the nation wealthier? Interestingly, neither TWF Internal Regulation nor regulations of the sub-funds do indicate how possible returns from the above “investments” to be associated with the major objectives of the TWF listed in article 1(1) of the Law no.6741.

Of course, this association could be realised in practice through 3-year Strategic Investment Plan, but as discussed above, it seems highly ambiguous. Furthermore, uniform articles (3.8) in the regulations of the sub-funds imply that Board of Directors may assign specific strategic targets for them while the list of eligible expenditures, even implicitly, do not refer to the provision of finance for infrastructure, energy, technology, telecommunication sectors, or any contribution to the general budget in this respect.

However, uniform articles, for example 11(1)/t of the TWF Internal Regulation, allow TWF and its sub-funds to pay “other expenditures to which the consent is given by the Board of Directors.”

Relying on this discretionary wideness, officials heading TWF and its sub-funds, without fear of being prosecuted at least in Turkey, may involve, for example, purchase of luxury real estate, paying gambling expenses, buying some artwork, purchase of lavish gifts for family members and associates etc. as officials of Malaysia’s 1MDB involved. In case any audit mission, there is no alarm since the auditors can only be able to check whether written consent of the Board of Directors is found in the file.

Concluding again, TWF and its sub-funds lack any visible mechanism channelling their returns to the wealth of nation.

Auditing on Behalf of the Parliament

TWF and its sub-funds are exempted from the audit of TCA. Significance of this audit comes from the fact that TCA as the Auditor General, carries out its audit missions “on behalf of the parliament.” That comprises one of the most crucial part of the “budget right” and Turkish Constitution authorises TCA only to do so.

In consistent with this perspective, as well as the conventional state organisations such as Treasury, Ministry of Finance, and Central Bank, paragraph (a) of the article 4(1) of the TCA Law no. 6085 reads that “…joint-stock companies established by special laws and of its capital directly or indirectly owned by the public sector…” are subject to the audit of TCA.

Furthermore, the sub-paragraph [annexed by the article 19 of the Law no. 6661] of the (ç) says “the companies along with their subsidiaries and associates which have less than 50% of the direct or indirect public share” are subject to a kind of indirect audit based on the independent audit reports to be submitted to TCA. TCA thus reports its relevant findings to the parliament.

Whether SWF or any other, in the organizational structure of an entity spending public money, governing and “supervisory” functions should be segregated. The governing bodies constitute a system of delegated asset management responsibilities whereas the role of the supervisory body is to verify that the supervised unit is operating in accordance with the applicable laws and regulations (IMF, 2013). Supervisory bodies typically include:

  • The “Auditor General” is, in most countries, designated by the constitution and operates “on behalf of the parliament” or of the crown to audit the activities of the government including those of SWF, and ensures reporting of relevant findings to the parliament. That is the TCA in Turkey which is however excluded from the audit of the TWF.
  • The “External Auditor” is usually selected by the governing body representing the SWF, Company in Turkey. The external auditor audits the accounts of the SWF and its sub-funds “on behalf of the governing body” and verifies that it is managed within the rules and regulations set by the governing body. External auditor therefore submits its audit report to the governing body. For TWF, that is the certified audit firm in charge of “independent audit” described in the article 6(1) of the Law no.6741. Independent audit findings are necessarily addressed to the Board of Directors and ultimately to the investors in the market.
  • The “Internal Auditor” is appointed by the executive board and reports to it. Internal auditor supports the board in supervising the management of the SWF and verifying that internal regulations are adhered to. For TWF, that is the internal audit function described in the article 2(4) of the Law no.6741. Internal audit findings are necessarily addressed to the Board of Directors and/or the Audit Committee.

In addition to the above audit functions, the article 6(2) of the Law requires the financial statements and activities of the TWF, sub-funds, Company, and affiliated companies which are previously audited by the independent auditor to be “audited” again by at least three central auditors appointed by the Prime Minister.

These auditors are required to be specialists in capital markets, finance, economy, banking, and development and to be “independent” in that mission. By the end of June of each year, they shall submit their reports to the Cabinet. Their findings are necessarily addressed to the owner of the TWF, i.e. central government.

The control mechanism, rather than “compliance audit”, looks like a kind of “expert review” to be conducted by a civil servants team on behalf of the Prime Minister holding their living wage in his hands. Nevertheless, overlapping audit missions do not necessarily maintain a quality assurance, but wastes time, energy and money in general.

As is known, neither independent audit nor expert review is carried out on behalf of the Parliament. However, pursuant to the article 6(3) of the Law, both independent audit reports and expert reviews are sent by the Prime Ministry to the Planning and Budget Commission of the Parliament so as to provide an “assurance” over the TWF operations by examining these reports.

The government, as the owner of the TWF, is accountable to the Legislature and to the public for the TWF’s declared objectives. But audit missions ensuring accountability are fulfilled under the patronage of the Prime Minister. It is obvious that this leaves little way to verify how the public money is spent and violates the GAPP-10 on the “accountability”.

On the other hand, article 11(1)/s of the TWF Internal Regulation reads that independent auditor is paid by the Company. That is a normal procedure indeed, but the same article is found within the regulations of all the sub-funds. This overlapping implies that each sub-fund will be audited separately or total audit cost shared by the sub-funds. This may have a complicating potential of audit process.

As can be seen, in the sense of auditing and reporting to the legislature, TWF clearly deviates from other SWFs in the world. The above mechanism produces less evidence for those who want to be assured that TWF is doing right things and contradicts with the GAPP-6: “the governance framework for the SWF should be sound and establish a clear and effective division of roles and responsibilities in order to facilitate accountability and operational independence in the management of the SWF to pursue its objectives.”

Concluding Remarks: Theft is Property

When he analyses the inequalities in ownership, Pierre-Joseph Proudhon, French thinker of 19th century, provocatively concludes that “property is theft!” But Erdoğan regime in Turkey made the “theft” property. This is a trend that is going to continue and TWF represents the last instance of Erdoğanist hoax.

For a SWF organisation bearing numerous deviations from the core GAPPs of the Santiago Principles, it seems less possible to be considered adequately “transparent” to invest in European and US markets. Therefore, TWF, as a fund owned by Turkey with an annual external financing deficit of around $30 billion, is expected to attract black money from the supposed “entrepreneurs” of the Middle East and Asia regions to plug the gap under a veneer of legality.

As well as lack of transparency and corporate governance practices, systemic uncertainties in securitisation of the assets under management leave less room to the TWF to play in the premier league of the SWFs. Although it voluntarily agrees to uphold the GAPPs, non-compliance with the international standards leads TWF to operate as an “inward-focused” fund exposed to a wide range of risks such as legality, governance, corruption etc.

However, all these likely explain why Erdoğan and his mujahidin sought such a funding vehicle under the SWF title. As such, TWF is a product of decay of Turkish political economy and governance frameworks and provides adequate evidence of Erdoğan’s continued commitment to predation of the public assets. For those who opened their eyes to see, every aspect of Erdoğan’s predatory tendencies is visible in design of the TWF. As a naïve muckraker, what we try to do here is to disclose some aspect of it.


Backer, L.C. (2015). International Financial Institutions (IFIs) and Sovereign Wealth Funds (SWFs) as instruments to combat corruption and enhance fiscal discipline in Developing States, International Review of Law, 2015:swf.5

Bortolotti, B., V. Fotak & W.L. Megginson (2014). The Rise of Sovereign Wealth Funds: Definition, Organization, and Governance. Baffi Center Research Paper No. 2014-163.

Cornelius, D. (2008). Are Sovereign Wealth Funds State‐Owned Enterprises?‐sovereign‐wealth‐funds‐state‐owned‐enterprises/ (28.09.2017).

Dedeoğlu, E. (2017). What Can Turkey’s Sovereign Wealth Fund do with this Portfolio? The Economic Policy Research Foundation of Turkey (TEPAV). Evaluation Note No. 2017/10.

IMF (2013). Sovereign Wealth Funds: Aspects of Governance Structures and Investment Management. IMF Working Paper No.13/231 prepared by A. Al-Hassan, M. Papaioannou, M. Skancke, and C. Chih Sung.

Milhench, C. (2017). A new breed of sovereign wealth fund – without the wealth. (28.09.2017).

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