(Recasts with Erdogan comments, adds lira)
By Tuvan Gumrukcu
ANKARA, Feb 22 (Reuters) - President Tayyip Erdogan on Monday defended a policy that oversaw a steep drop in FX reserves under former finance minister Berat Albayrak, his son-in-law, saying it helped Turkey to ride out pandemic-related shocks.
In a surprise leadership overhaul in November, Albayrak abruptly resigned shortly after Erdogan replaced the central bank governor.
In his two-year term as finance minister, the lira slumped to record lows while foreign-exchange reserves dwindled under a policy of state banks selling an estimated $130 billion in dollars to support the lira.
In a social media campaign blaming Albayrak for economic woes, the main opposition Republican People's Party (CHP) demanded to know what had happened to the FX funds that it said was sold from the central bank's reserves.
Erdogan described the CHP campaign as an attack on his family, and that Albayrak had been at the forefront of the country's economic battle.
"Planned forex transactions were carried out in this difficult period to ensure there were no problems with the balance of payments," Erdogan said in a speech to a provincial congress of his ruling AK Party.
"Thanks to the forex transactions, our country managed to remain committed to its goals despite serious international shocks."
The political dispute weighed on the lira, which weakened 1.2% to 7.0375 against the dollar. Since Albayrak stepped down, the lira has rallied more than 20% and foreign investors have snapped up Turkish assets on expectations of more orthodox policies.
Economists, investors and ratings agencies say the unorthodox FX interventions policy, which began in 2019 and helped chop net reserves down by three quarters last year alone, left the economy more fragile to crisis.
Current finance minister Lutfi Elvan had earlier defended Albayrak's reserves policy as a response to the extraordinary demands of the COVID-19 pandemic.
"I strongly condemn the unjust and rude rhetoric used by the CHP," Elvan said on Twitter on Sunday.
A lawyer for Albayrak said at the weekend the CHP's campaign comprised "ugly slander and attempts at smearing" the former minister, adding that they would file a 500,000 lira ($71,000) damages lawsuit over the campaign.
The transactions were in line with regulations and aimed for financial stability, the lawyer said in a statement.
"Since the day he resigned from his post, Mr Berat Albayrak has been spending time with his wife and children at home, like in any normal Turkish family," it added. ($1 = 7.0130 liras) (Additional reporting by Nevzat Devranoglu; Writing by Jonathan Spicer; Editing by Daren Butler and Gareth Jones)
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