Ankara shuns IMF help even as Turkish lira crashes to record low

Ali Babacan
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Updated 09 August 2020

Ankara shuns IMF help even as Turkish lira crashes to record low

  • The IMF won’t be sufficient to meet Turkey’s foreign financing needs, even if the government were to request assistance: Ali Babacan, Former finance minister

ISTANBUL: Despite the Turkish lira hitting a record low against the dollar and euro, Ankara has so far resisted asking for help from the International Monetary Fund (IMF).

Instead, it hopes to survive a looming balance of payments crunch without any foreign support beyond an extended swap deal with its regional ally Qatar.

In late May, Turkey tripled its existing local currency swap deal with Qatar to $15 billion as a remedy to its depleted foreign reserves.

Any request for help from the IMF would be a last resort, though the factual prerequisites for a deal are already in place.

On Thursday, the lira hit an unwelcome milestone, having lost nearly 20 percent of its value against the dollar since the start of the year.

But as the lira has long been hostage to domestic politics, experts note that the political costs of knocking on the IMF’s door would be higher for Turkish President Recep Tayyip Erdogan amid speculation over snap elections.

Nikolay Markov, senior economist at Pictet Asset Management in London, believes this will be an option of last resort given previous reluctance from Ankara to accept IMF loans.

“I think it is not on the table right now but may become an inevitable option later in the year if domestic economic policies do not adjust in the right direction. This is actually the best policy option to improve the country’s macro fundamentals and restore investors’ confidence in the medium to long term,” he told Arab News.

This year, Turkey’s economy is expected to contract for the first time in more than a decade, with 5 percent of that due to the effects of the coronavirus pandemic.

However, according to Nigel Rendell, a senior analyst at Medley Global Advisers in London, there is little chance of Erdogan calling in the IMF.

“It would be political suicide. He is completely against foreign ‘interference’ in the Turkish economy,” he said.

According to Rendell, a more likely option would be creeping capital controls to restrict the exchange of the lira for foreign currency.

Erdogan has promised that IMF assistance was not an option for Turkey, over fears that any dependence on the Washington-based institution may weaken his support. But as an alternative to the IMF, a swap transaction with the US Federal Reserve is seen as a possibility by Ankara, as well as an instrument to mend ties with the US.

Ali Babacan, Erdogan’s former economy tsar who recently formed his own breakaway party, DEVA, gave a surprise interview to Bloomberg, saying: “The IMF won’t be sufficient to meet Turkey’s foreign financing needs, even if the government were to request assistance, making currency swap deals with other central banks a necessity.”

But according to Babacan, “Turkey’s increasingly bellicose foreign policy makes such an arrangement more difficult. There is no such thing as exporting to countries we’re quarreling with and asking for swap deals like nothing happened.”

As Ankara is running out of alternatives to its monetary policy, and with its central bank’s gross FX reserves having dwindled to $51 billion from $81 billion this year, experts say Turkey will gain advantages if it renounces its complete rejection of any contact with the IMF.

Sergey Dergachev, senior portfolio manager at Union Investment, thinks that for investors, if the Turkish government even signals its willingness to meet with IMF officials, this will lead to positive initial sentiment towards Turkish assets.


HSBC, StanChart shares fall to 22-year lows

Updated 22 September 2020

HSBC, StanChart shares fall to 22-year lows

  • Falls follow reports on movements of allegedly illicit funds; shares fall amid wider selloff in stocks

LONDON: HSBC’s shares in Hong Kong and Standard Chartered’s in London fell on Monday to their lowest since at least 1998 after media reports that they and other banks, including Barclays and Deutsche Bank, moved large sums of allegedly illicit funds over nearly two decades despite red flags about the origins of the money.

BuzzFeed and other media articles were based on leaked suspicious activity reports (SARs) filed by banks and other financial firms with the US Department of Treasury’s Financial Crimes Enforcement Network (FinCen).

HSBC shares in London fell as much as 5 percent to 288 pence, their lowest intraday level since 2009, after the lender’s Hong Kong shares earlier touched a 25-year low. The stock has now nearly halved since the start of the year.

StanChart dropped as much as 4.6 percent in London to its lowest since 1998, against the backdrop of a broader sell-off in the market with the STOXX European banks index down 4.8 percent.

More than 2,100 SARs, which are in themselves not necessarily proof of wrongdoing, were obtained by BuzzFeed News and shared with the International Consortium of Investigative Journalists (ICIJ) and other media organizations.

In a statement to Reuters on Sunday, HSBC said “all of the information provided by the ICIJ is historical.” The bank said that as of 2012 it had embarked on a “multi-year journey to overhaul its ability to combat financial crime.”

StanChart said in a statement it took its “responsibility to fight financial crime extremely seriously and have invested substantially in our compliance programs.”

Barclays said it believes it has complied with “all its legal and regulatory obligations, including in relation to US sanctions.”

The most number of SARs in the cache related to Deutsche Bank, whose shares fell 5.2 percent on Monday. In a statement on Sunday, Deutsche Bank said the ICIJ had “reported on a number of historic issues.”

“We have devoted significant resources to strengthening our controls and we are very focused on meeting our responsibilities and obligations,” a spokesperson for the bank said.

London-headquartered HSBC and StanChart, among other global banks, have paid billions of dollars in fines in recent years for violating US sanctions on Iran and anti-money laundering rules.

The files contained information about more than $2 trillion worth of transactions between 1999 and 2017, which were flagged by internal compliance departments of financial institutions as suspicious. 

The ICIJ reported the leaked documents were a tiny fraction of the reports filed with FinCEN. HSBC and StanChart were among the five banks that appeared most often in the documents, the ICIJ reported.

“It confirms what we already knew — that there are huge numbers of SARs being filed with relatively low numbers of cases brought through to prosecution,” said Etelka Bogardi, a Hong Kong-based financial services regulatory partner at law firm Norton Rose Fulbright.