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.

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A swap line

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


Oil surges on hopes of new deal on output cuts

Updated 02 June 2020

Oil surges on hopes of new deal on output cuts

  • Brent price has doubled in five weeks
  • OPEC talks may be brought forward

DUBAI: Oil prices surged toward $40 a barrel on Monday as hopes rose for an early agreement to extend the big production cuts agreed by Saudi Arabia and Russia under the OPEC+ alliance.

Brent, the global benchmark, jumped by more 9 percent to nearly $39, continuing the surge that has doubled the price in five weeks — the best performance in its history. It recovered after record supply cuts agreed between the 23 countries of the OPEC+ partnership, and enforced cuts in US shale oil.

DME Oman crude, the regional benchmark in which a lot of Saudi Aramco exports are priced, rose above $40 a barrel for the first time since early March.

Market sentiment was buoyed by the possibility that the Organization of Petroleum Exporting Countries would agree with non-OPEC members to extend the cuts for a longer period than was agreed in April.

Oil analysts expect OPEC to fast track a “virtual” meeting to formally agree to maintaining cuts at the record 9.7 million barrels a day level. The meeting was scheduled for June 9, but bringing it forward would allow producers more time to set pricing levels.

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An official with one OPEC delegation told Arab News there was consensus among the 23 OPEC+ members for the new date, which could be as early as June 4. The meeting will also consider how long the current level of cuts would be maintained. Some OPEC members want it to run to the end of the year, other producers would prefer a two-month extension.

Omar Najia, global head of derivatives with trader BB Energy, told a forum run by Gulf Intelligence consultancy: “I’d be amazed if OPEC did not extend the higher level of cuts. As long as Saudi Arabia and Russia continue saying nice things to each other I’d expect the rally to continue.”

A Moscow source close to the oil industry said energy officials there had come to the conclusion that “the deal is working” and it was important to keep prices at an “acceptable” level.

Sentiment was also affected by a comparatively high level of compliance with the new cuts, running at about 75 percent among OPEC+ members, with only Iraq and Nigeria noticeable under-compliers.

Robin Mills, chief executive of Qamar Energy, said: “That’s where I’d expect it to be after two months in such a fluid situation. It will be even better in June.”