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2.0 Politics
2.1 External financing
Non-EU emerging countries across central and eastern Europe have requested IMF assistance amid the pandemic, but neither Turkey nor Russia have done so, according to the director of the Fund's European department, Poul Thomsen.
“Swap agreements between central banks should be enlarged to all G20 countries to reassure the global markets,” Erdogan reportedly said on March 20 during the G20 Extraordinary Leaders’ Summit, which was held with an agenda on the virus via video conference.
The central bank said on March 31 that it would hold swap auctions, a way to tap FX from local lenders, with 3-month, 6-month, 1-year maturities for lira against dollars, euros or gold at an interest rate pegged 125bp lower than the policy rate.
Major loan rollovers continued without defaults (See Section 5.4 below for details).
What’s the plan?. All observers continue to wonder what the Erdogan administration is planning as regards Turkey’s indispensable FX needs.
The Fed opened a swap facility for foreign central banks that pays out in exchange for US Treasury paper, but Turkey only had $2.8bn of such paper as of January, down from $77bn in 2014 and $53bn in 2017.
“Turkey’s IMF deal in particular would surely dwarf Argentina’s record $57bn bailout... A deal for Turkey could amount to around three quarters of the IMF’s total outstanding country loans... It’s also possible that the US vetoes any potential deal for Turkey given their turbulent political relationship,” Edward Glossop of Capital Economics said on April 2 in a note entitled “Three key questions on IMF support for EMs”.
“To be clear, domestic politics mean that policymakers in those countries are likely to exhaust all other options (capital controls, import compression and bilateral loans) first before turning to the Fund. IMF help will be a last resort. One thing to watch for in the coming weeks will be the incoming FX reserve figures. If these begin to slide, it would be a worrying sign that external vulnerabilities are biting,” he added.
“In the face of rapid capital outflows, EMs may turn to capital controls to stabilise balance of payments positions. Such measures might help to stave off crises in some countries (particularly if they come alongside external support), but strains in the balance of payments would remain severe,” Nikhil Sanghani of Capital Economics said on March 31 in a note entitled “Would capital controls work in EMs?”.
The Turkish Finance Ministry on April 4 authorised staff abroad to develop relations with public or private fund providers.
“Rewriting the rulebook”. “The road ahead is unusually uncertain. What we can be sure of at this stage is that the slump in output over the coming months will be huge,” Neil Shearing of Capital Economics said on March 30 in a note entitled “The coronavirus is rewriting the economic rulebook”.
6 TURKEY Country Report May 2020 www.intellinews.com
