



The measures announced by Erdogan against JP Morgan and other foreign banks are identical with what Isarescu, Governor of Central Bank of Romania, enforced in October 2008.

A short refresher of the moves of Isarescu, vested interests in the exchange rate manipulation in the so called speculative attack on Ron in 2008 will shed more light on what Erdogan is doing and what will be the effect on the Turkish economy.

Isarescu made a promise to the Romanian politicians in September 2008 that the exchange rate will exhibit zero volatility ahead of November 2008 general elections. What was important for Isarescu was not only the proceeds from foreign exchange manipulation but also reelection as Central Bank Head in 2009. A controlled currency and decent interest rate differential allowed Isarescu and certain politician related trading outposts to benefit from leveraged carry trade deals shorting euro against Ron.

Given that the politicians approved in parliament a 50% increase in salaries of teachers certain offshore carry trade positions started to unwind.

Scarred by the depreciation of Ron, and under pressure from politicians and margin traders, Isarescu intervened in the interbank foreign exchange market.

Therefore the already scarce liquidity due to minimum reserves requirements and budget payments made the O/N implied yields to top 1000% (one thousand percent).

In order for the liquidity crises not to spill over the press and the election campaign, Isarescu went to the Romania’s Parliament and lied to the elected body that in Romania wasn’t in a liquidity crisis.

In paralel, Isarescu acted in several ways to stop the information to become public (in chronological order in order for the reader to be able to tick the boxes of what Erdogan is doing in Turkey with the Turkish Lira).

Isarescu went in the media that he controlled directly or via the sponsorships of the commercial banks by saying that 3 foreign banks attacked the local currency and he defended it successfully. The 3 banks mentioned were Barclays, Credit Swiss and Goldman Sachs.

Because the pressure was not decreasing Isarescu asked the heads of the local commercial banks to come to the Central Bank of Romania for discussions.

At NBR, in small groups, the bankers were threatened with losing their jobs if they do not stop working with the foreign banks. The records of the threats are made public by an investigation committee of the Romania’s Senate on the money market indices (the period covered is October 2008 – April 2009).

Isarescu communicated to the local management and to foreign ownership of the local banks that if they will not stop working with the foreign players in the currency markets he will go in the press personally and name the local banks, pushing for a run on that banks. In reality he gave the name of 4 banks in an informal press conference in order not to be traced clearly to him. The local banks on which he created public pressure with operations in Romania retail and corporate market were Unicredito, ING, RBS and EFG Eurobank.

Isarescu asked 5 banks participating in Robor fixing (the local equivalent of Libor) to keep the same quotations in the page at 14 with 17.80 despite the market being at 1000%. Because the other 5 participants disregarded the threats Isarescu publicly asked the Competition Council to intervene, to create more pressure on the banks. The competition Council fined Raiffeisen for providing wrong info and BRD Socgen for not allowing the inspectors to enter for several hours. In 2013 Competition Council closed the investigation without any ruling.

After all the above efforts Isarescu restricted administratively the Robor index at 25% over the Lombard rate, 17.80%. That rate was posted on the Reuters page until April 2009 to show that the market calmed even if the transactions continued to be done at much higher rates.

The commercial banks at which the margin trading outposts were having accounts managed to close the positions internally at Robor of 17.80%, as at the market prices would have being margin called.

One of “friendly” banks with Isarescu, in the sense that massively buys wine from the personal entrepreneurial endevour, collapsed. NBR had to step in the save Banca Transilvania (TLV on BVB) outside the legal framework approved at that time.

The EurRon hovered around 3.7 Ron for Euro pretty the entire pre-election period and up to the creation of the new government. After 2 months, in January 2009 the exchange rate, without for Isarescu cu blame publicly the banks for an foreign exchange attack jumped rapidly to 4.3 ron per euro. As a comparison Poland aloud the exchange rate to float and glided through the same period without a recession.

The end result was that giving the emergence of the crises Isarescu was reappointed Governor of NBR, and Băsescu, Country President got re-elected in 2009, by playing the economy savior with the help of IMF.

As a conclusion, Isarescu limited the losses of the politicians and of margin accounts but the banks called off and didn’t extended fresh corporate and retail loans as the benchmark Robor was far away from the real funding rate. The Romanian Government funded on average in local currency at an average of 11% in 2009 despite the deep recession. The Ministry of Finance was “convinced” by Isarescu not to borrow from foreign banks because he will arrange for NBR to fund Ministry of Finance via a engineered pass-through using couple of local banks: that banks will buy Romania bonds with almost simultaneous repurchase transaction with NBR at the intervention rate (the reason why the average was huge for a crisis).

As a trivia Isarescu started in 2009 to approve himself performance bonus from the profit of NBR (with the IFM loan sitting at NBR) and NBR became the only Central Bank in the World with a performance bonus linked to profit (there are several other funds in millions of euro granted for the exclusive use of the NBR Council of Administration).

Romanian Central Bank remained with high interest rates despite the reduction operated by all the other central banks until 2012.

Romania plunged from a growth of plus 7.8% in 2008 to minus 7.1% in 2009. Moreover the crises that engulfed Romania ended only in 2012 and the GDP of 2008 was matched end of 2015. Romania asked help and received a oversized loan from IMF.

Will Turkey avoid Romania’s fate?