Turkey will protect banks from fall-out of Zarrab case, minister says

The Turkish government will take necessary measures if its banking system is impacted by an ongoing United States court case over alleged Iran sanctions evasion, Finance Minister Naci Ağbal has told Reuters in an interview.

Ağbal said Ankara would do whatever was needed to protect the interests of its banks, comments aimed at easing investor concern about the potential fall-out from the trial of an executive of state lender Halkbank.

“We say if anything is going to happen, in this situation we will stand by the banks,” he said late on Dec. 6. “We must not allow any eventuality that would weaken our banking system.”

A Turkish-Iranian gold trader, Reza Zarrab, has pleaded guilty to charges that he schemed to help Iran evade U.S. sanctions and is testifying in a U.S. court against the Halkbank executive, Mehmet Hakan Atilla, for related charges.

Atilla has pleaded innocent and Halkbank has said all of its transactions have complied with international and domestic regulations. Ankara has said the case is politically motivated and an attempt to undermine Turkey’s economy and government.

International investors have expressed concern that banks could be drawn into the U.S. case.

Ağbal also said the government was determined to take all steps to reduce forex volatility.

Speaking at the Turkey Finance Forum in Istanbul earlier in the day, Ağbal said a more effective policy would be implemented in the fight against inflation.

“Finance policy expenditures and collected taxes will be used to support the economy,” Ağbal said.

“We are also talking about a Value Added Tax [VAT] reform. This will not be free; some of the public finance will be sacrificed for the sake of production and employment. The rules of the VAT have not been changed for 32 years and this negatively affected the investments and production in the Turkish economy. We want to change that,” he added.

The finance minister said there is room in finance polices to boost economy, but careful steps will be taken.

“We will not make any spending for nothing, we will cut our coat according to our cloth,” Ağbal said.

“Our achievements as the nation in finance policy make us strong both here and abroad. We paid the price of the extravagance in the 1990s in the 2000s. God willing, we will not face the troubles of those years again.”

Ağbal said sticking to a strict fiscal discipline does not mean lacking services.

“It is to do the right spending in the right place,” the minister added.

“Excessive public spending does not bring economic growth. It is the private sector, private sector investments, the power of exports and production that will boost the economy,” he said.

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