Turkey seeks global funding help to gird against lira shock

Treasury and central bank officials have held bilateral talks in recent days with counterparts from Japan and the UK on setting up currency swap lines. (Reuters/File Photo)
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Updated 14 May 2020

Turkey seeks global funding help to gird against lira shock

  • Cevdet Yilmaz, the ruling AK Party's deputy chairman for foreign affairs, confirmed on Thursday that Turkey was seeking swap agreements

ANKARA: Turkey's government has appealed to foreign allies in an urgent search for funding, three senior Turkish officials said, as it prepares defences against what analysts fear could be a second currency crisis in as many years.

Treasury and central bank officials have held bilateral talks in recent days with counterparts from Japan and the UK on setting up currency swap lines, and with China on expanding existing facilities, the officials said.

Cevdet Yilmaz, the ruling AK Party's deputy chairman for foreign affairs, confirmed on Thursday that Turkey was seeking swap agreements.

"We are having negotiations with different central banks for swap opportunities," he told a panel discussion, adding: "It is not only the U.S., there are also other countries."

He did not give further details.

The push comes after the lira hit a historic low last week, limiting Ankara's capacity to address concerns over its depleted foreign reserves and hefty debt obligations.

One of the officials told Reuters Turkey was feeling confident after the talks. But it was unclear how close it may be to securing any deals as the coronavirus pandemic stretches governments and central banks like never before.

Turkey's Treasury ministry, Japan's finance ministry and the Bank of England declined to comment. The People's Bank of China did not respond to a faxed request for comment.

If Turkey cannot secure tens of billions of dollars worth of funding, analysts say it risks a currency spiral https://tmsnrt.rs/2L5ks0o similar to 2018, when the lira briefly shed half its value in a crisis that shook emerging markets.

The government has said its forex buffer is adequate. This week, President Tayyip Erdogan blamed the lira's fall on "those who think they can destroy our economy, put shackles on our feet, corner us by using financial institutions abroad".

The diplomatic effort comes as the coronavirus pandemic is expected to trigger a recession.

It suggests Turkey is looking beyond its preferred source of funding, the U.S. Federal Reserve, and may have to consider tougher decisions on interest rates or options it has dismissed, such as IMF assistance or capital controls, investors say.

The two other officials said Turkey reached out to Japanese representatives about possible funding, with one adding that talks need to be speeded up if a swap line is to be secured.

The Turkish central bank's net foreign currency reserves tmsnrt.rs/3bOJYmo have dropped to $26 billion from $40 billion this year. Bankers say that was largely due to state lenders selling some $30 billion in FX markets to support the lira, which has nonetheless fallen 15% this year.

The country’s 12-month foreign debt obligations are $168 billion, with about half due by August, while disappearing tourism income has inflated its monthly current account deficit to nearly $5 billion.

“I don’t really see how Turkey can navigate this period, especially considering their external vulnerabilities,” said Shamaila Khan, director of emerging markets debt at AllianceBernstein in New York.

Turkey has underestimated its risks “unfortunately for months now” said Khan, who was among hundreds of investors on a conference call with Finance Minister Berat Albayrak last week.

On the call, Albayrak said reserves are adequate and he was optimistic about negotiating new funding with fellow G20 nations and trade partners, according to participants and a brief ministry summary.

He singled out countries with whom Turkey has large trade deficits and promised an update to existing swap lines, one investor said. Turkey has currency swap facilities worth $1.7 billion with China and $5 billion with Qatar.

The Fed extended dollar swap lines to several countries in March but it appears unlikely to add Turkey despite Ankara’s appeal to Washington, based on comments from current and former officials. The U.S. central bank declined to comment.

A Japanese government official said Tokyo has no plan for now beyond monitoring the lira, but added the Group of Seven (G7) countries or the International Monetary Fund would rescue Turkey “if it morphs into a real crisis.”


Ethiopia says Renaissance Dam negotiations resuming Monday

Updated 56 min 26 sec ago

Ethiopia says Renaissance Dam negotiations resuming Monday

  • Talks making little progress

CAIRO: Negotiations about the Grand Ethiopian Renaissance Dam will resume on Monday, Ethiopia’s state news agency reported the country’s Foreign Affairs Ministry spokesman as saying.

Talks among Egypt, Ethiopia and Sudan about the controversial multi-billion dollar project have made little progress in resolving outstanding issues.

Egypt and Sudan both fear that the dam, which is being built about 15 km from the Ethiopian border with Sudan, could cause water shortages. Sudan is also concerned about the structure’s safety.

Ethiopia’s Foreign Affairs Ministry spokesman Ambassador Dina Mufti said that the country could not sign an agreement that stipulated the passage of specific quotas of water from the dam to the downstream countries. 

Ethiopia’s proposal confirmed its commitment to taking into account the concerns of the downstream countries about droughts that may occur in the future, according to Mufti. 

He told a media briefing that Ethiopia was anticipating such concerns and was taking droughts into account and dealing with them, adding that Ethiopia had also confirmed in its proposal that it would continue the stages of filling the dam and not address the issue of sustainable sharing of the Nile’s water.

“Water sharing is not limited to the three countries, there are Nile Basin countries that you must be involved with,” Mufti said.

He expressed Ethiopia’s hope that the negotiations would be successful and that an agreement about the rules for filling the dam would be reached as soon as possible, as he stressed his country’s commitment to continuing negotiations to resolve outstanding issues.

Last week Egypt and Sudan announced the suspension of meetings about the Renaissance Dam and plans to hold “internal consultations on the Ethiopian bid” instead after the release of a letter presented by Ethiopia’s water minister, including draft guidelines and rules for filling the dam. Egypt confirmed that the Ethiopian letter contradicted what was agreed upon in the meetings headed by the water ministers.

Mohamed Nasr Allam, former Egyptian minister of irrigation and water resources, slammed Ethiopia and the African Union’s handling of the current negotiations.

“The recent Ethiopian statements confirm Addis Ababa’s insistence on obtaining a share of the Blue Nile water, deducting from the two downstream countries’ shares, and that it will not sign an agreement to operate the Renaissance Dam,” he told Arab News. “Ethiopia is behaving like a hostile country and is not ashamed of that, and the time has come for Egypt and Sudan to act accordingly.

“The African Union is incapable. My personal belief is that the last stop of the peace process is the Security Council,” he said. “Hopefully the case will be referred to international arbitration while stopping the construction of the dam or issuing a decision to respect the old agreements. With the help of international experts, we can reach rules to reduce harm to Egypt and Sudan, whether in filling or operating the dam.”

Muhammad Mursi, former assistant foreign minister, said the time had come for Egypt to return to the UN Security Council once more given Ethiopia’s position on the dam.

Mursi described Mufti’s statements as “revealing and indicative” even though there was nothing new in them.

“(His statement) reaffirms that Ethiopia is continuing in its defiance and refusal to recognize any rights for Egypt and Sudan, other than what Ethiopia offers us and according to its estimates and interests and without any written commitment.”

The main dilemma with Ethiopia was its refusal to recognize Egyptian rights to the Nile’s waters, he added, and its refusal to sign any document of a mandatory nature with Egypt and Sudan to monitor any control or restrictions on Ethiopia’s complete freedom to build dams and to benefit from the waters of the Blue Nile in the manner that it did.

He believed that the process of filling and operating the dam reservoir was neither the main obstacle nor the most significant in these negotiations.

“We have no other peaceful alternative but to return to the Security Council, after we gave one opportunity after another to solve the problem within Africa, and prior to that dozens of opportunities over many years in the direct bilateral or tripartite framework negotiations,” he said.