The events of the past few weeks and two issues, which I believe are closely intertwined with each other, posed certain risks for Turkey’s economy. The first of these risks, which entailed the statements by the embassies of ten Western countries, signaling an interference in Ankara’s internal matters ended in Turkey’s favor with President Erdogan’s steadfast stance, instantaneously alleviating the pressure on the exchange rate. However, the second risk was still a matter of concern, and Turkey was downgraded to a gray list by the FATF.

The FATF, or The Financial Action Task Force, is an organization affiliated with the Organization for Economic Cooperation and Development (OECD). Established by G7 countries in 1989, it determines policies and standards to battle criminal offenses such as human and drug trafficking, terror attacks and the financing of weapons of mass destruction.  Turkey has been a member since 1991.

FATF President  Dr. Marcus Pleyer announced that, despite the fact that Turkey had made progress since it had been warned in its 2019 report, it has serious shortcomings on money laundering in the area of banking, gold and precious metals, as well as real estate, and hence has been downgraded to the gray list. 

 Turkey’s Financial Crimes Investigation Board (MASAK) had objected to the FATF’s 238-page  report of 2019 and deemed it as “unjust, far from the truth and unacceptable,” which was an undeserved outcome forwarded to the board of the FATF.

The Turkish Treasury, on the other hand, released a statement following the decision, where it listed the steps taken, one by one, and highlighted the “undeserved outcome.”

A study released by the International Monetary Fund (IMF) last May analyzed the effects of gray listing on capital movements. According to their results, gray listing has a tangibly negative effect on the economy. That is; When a country is gray-listed, the decrease in capital inflows is 7.6 percent of the average GDP. Similarly, while foreign direct investments decreased by 3 percent on average, the decrease in portfolio inflows was calculated as 2.9 percent.

 Both the statements by MASAK and Turkey’s treasury depict the injustice of the decision taken to Turkey’s detriment. Even though the decision is question has been technically explained, the content of unfair accusations and the timing need to be justified.

Of course, we could adopt an optimistic perspective that this decision is really just about topics such as battling money laundering and the financing of terrorism. However, when the long-term economic impacts and the unfair contents of it are taken into consideration, it’s as clear as day that the decision was made not based on technicalities but political motives.