Turkey ‘faces high bar over US Fed funding’

Coronavirus restrictions have piled pressure on Turkey’s fragile economy, pushing the national currency to a record low. (AP)
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Updated 14 May 2020

Turkey ‘faces high bar over US Fed funding’

  • Former New York Fed chief cites ‘bumpy relations’ with Washington as major hurdle to currency swap

ISTANBUL: Turkey’s foreign cash needs are unlikely to be relieved by the US Federal Reserve given its economic challenges and volatile diplomatic relations with Washington, the New York Fed’s former chief said.

William Dudley, who from 2009-2018 was vice chair of the US central bank’s policy-making committee and ran its New York branch that oversees foreign funding, said “there is definitely a significant reluctance” to expanding the dollar swap lines.

Ankara is facing a cash crunch of depleted foreign reserves and relatively high debt obligations, and has appealed directly to Washington for a Fed dollar swap line. It is also discussing funding with other central banks.

Dudley said that while some geopolitical friction between Ankara and Washington could pose a hurdle, a strong endorsement from US President Donald Trump could influence the Fed’s decision whether to extend funding to Turkey.

“I would be very surprised if the Fed did it unilaterally,” Dudley said by telephone.

“It seems the reasons the swaps are needed in Turkey do not fit into the Fed’s stated goals. It’s also hard to imagine that the Fed would run out swaps to a country that is having some bumpy relations with the US,” he added. “Never say never, but the bar is pretty high to extending these swaps.”

The comments could dampen Turkey’s hopes of securing funding from the Fed, which did not include Turkey when in March it expanded dollar lines to Brazil, New Zealand, South Korea and others in response to the coronavirus pandemic.

The Turkish lira tumbled to a historic low against the dollar last week and is down more than 15 percent this year as investors fretted over the cash crunch and a severe economic slump due to pandemic containment measures.


 Net foreign currency reserves at Turkey’s central bank have fallen to around $28 billion from $40 billion so far this year, reaching as low as $25 billion three weeks ago. The country’s short-term foreign obligations are around $170 billion.

Swap lines — in which the Fed accepts other currencies in exchange for dollars — are meant to support big foreign dollar markets and any facility would be conditional in part on counterparty risk.

The US central bank has not commented on Turkey’s request. Asked last week about extending swaps to Turkey or others in need, a current Fed policymaker said lines are already in place with countries that have a relationship of “mutual trust” and high credit standards.

Dudley, who played a role selecting the Fed’s original swaps recipients ahead of the 2008 financial crisis, said however the central bank could reconsider a facility especially if the White House lobbied on Turkey’s behalf.

“You could imagine the Trump Administration weighing in in a forceful way that would affect the Fed’s thinking,” he said, adding foreign funding remains controversial in Washington.

“The Fed doesn’t want to pick winners and losers and effectively choose who is following an appropriate set of economic policies. It’s really for that country and the IMF to decide how to support foreign investor confidence,” said Dudley.

Ankara’s relations with NATO ally Washington have been bruised by disputes over human rights, Western sanctions on Iran and Turkey’s purchase of Russian S-400 missile defenses for which it faces potential US sanctions.


A swap line

A swap line means the Fed accepts other currencies in exchange for dollars.

G7 backs extension of G20 debt freeze, calls for reforms 

Updated 25 September 2020

G7 backs extension of G20 debt freeze, calls for reforms 

  • Group of Seven ‘strongly regret’ moves by some countries to skip participation in debt relief for world’s poorest nations

WASHINGTON: G7 finance ministers on Friday backed an extension of a G20 bilateral debt relief initiative for the world’s poorest countries, but said it must be revised to address shortcomings hindering its implementation.

In a lengthy joint statement, the ministers from the Group of Seven advanced economies said that they “strongly regret” moves by some countries to skip participation by classifying their state-owned institutions as commercial lenders.

Two officials from G7 countries said the reference was clearly targeted at China, which has refused to include loans by the state-owned China Development Bank and other government-controlled entities in its official bilateral debt totals when dealing with countries seeking debt relief.

The ministers also acknowledged that some countries will need further debt relief going forward, and urged the Group of 20 major economies and Paris Club creditors to agree on terms by next month’s meeting of G20 finance ministers.

“Everyone was disappointed by China’s lack of transparency and commitment,” said one official, who asked not to be named.

At an online meeting hosted by US Treasury Secretary Steven Mnuchin, the ministers underscored their commitment to work together to support the poorest and most vulnerable countries, which have been hard hit by the coronavirus pandemic.

They asked the International Monetary Fund and World Bank to provide regular updates on the financing needs of low-income countries and propose solutions for expected financing gaps, including through instruments to leverage access to private finance.

They said the Debt Service Suspension Initiative (DSSI) approved in April by G20 countries, including China, had helped 43 countries defer $5 billion in official debt service payments to free up money to respond to the pandemic.

But the total is far short of the $12 billion in savings that were initially projected, and represents just over half of the 70-plus countries that were eligible.

The ministers said the initiative should be extended, “in the context of a request for IMF financing,” and called for a new term sheet and memorandum of understanding to improve its implementation.

The ministers said claims classified as commercial under DSSI would also be treated as such in future debt treatments and for implementation of IMF policies, delivering a stern reminder to China and others that have not been fully transparent about the scope and terms of government lending to poor countries.

The ministers also called again on private lenders to implement the debt relief initiative when requested, noting that the absence of private sector participation has limited the potential benefits for several countries.