A crisis of historic proportions has engulfed the financial market in Turkey, as around half a million people have been affected by investment funds accused of pyramid-like schemes. Authorities have ordered the liquidation of around 130 funds, with a total value of around $17 billion.
The financial crisis has quickly become a political problem for President Recep Tayyip Erdoğan’s administration, as questions have been raised about the links between the funds, their managers and figures close to the government. One of the political figures directly accused is Fatma Betül Sayan Kaya, a former family minister and a leader of the ruling Justice and Development Party (AKP). She resigned on Sunday after the opposition accused her of making significant profits from selling shares shortly before the fund crisis caused a sharp drop in the stock market on September 16.
President Erdogan addressed the issue on Monday, saying authorities would prosecute those responsible for market manipulation and suspected fraudulent trading schemes. “Anyone who affects the rights, assets or legitimate interests of the nation will face us and the state,” Erdogan declared.
The funds involved in the crisis had concentrated their investments in stocks with low liquidity and a relatively small number of shares outstanding. This made it easier to artificially increase prices. One example is the Tera fund, which over the past year had recorded a return of more than 1,500%, an increase that raises strong questions about how these values were formed. The authorities have set a six-month deadline for the sale of the funds’ assets and the return of money to investors. However, experts are pessimistic about the amount that investors will be able to recover, as many of them may not receive the inflated profits that were reflected in the value of their investments.
The crisis could also have political consequences, as some of the affected investors are believed to be voters of the ruling party, potentially increasing the political cost of the scandal for the Erdogan government.