TURKEY LOOKS TO FED’S CURRENCY SWAP WINDOW
Hurriyet
Nov 12 2008
Turkey
ANKARA – IMF continues to pressure the Turkish government to curtail
spending prior to the local elections, the prime minister signals he
may turn to Fed for a currency swap line deal to bring liquidity to
Turkey’s markets. However some analysts say that would only provide
a short term solution
As the liquidity abundance comes to an end due to the global economic
crisis, the Turkish government turns to this weekend’s G-20 summit.
Turkish Prime Minister Recep Tayyip Erdogan, who is expected to make
concrete developments with the International Monetary Fund toward a
new deal, may also ask the U.S. Federal Reserve, or Fed, to extend
a currency swap agreement to help the country cope with the global
credit crisis. If the IMF continues to pressure the Turkish government
to curtail spending prior to the local elections, then Erdogan may
chose to utilize Fed resources, some informed sources claim.
The Prime Minister implied to bankers in Ankara last Friday that he
was going to meet both with U.S. President George W. Bush and German
Chancellor Angela Merkel and ask the for a helping hand to provide
resources to Turkey. Both of these countries are valuable partners in
the IMF, Erdogan said. The developments achieved in Turkey’s economy
so far need to be maintained. In order to do that Turkey needs
outsourcing, he said, adding, "This is what I will try to explain
[to them]."
Building a case "I will tell them that Turkey is a country with a young
population and that is why it needs to perpetuate its growth. The IMF,
instead of stipulating conditions for us, should provide resources
for the medium-term program we have set up," he said.
Based on the feedback from the bankers, Erdogan said his visit
to the United States for the G-20 summit was aimed at obtaining
"whatever funding there is to be had." From Erdogan’s speech the
bankers seem to have gained the impression that the Prime Minister’s
talks in Washington would not be limited to negotiations over an IMF
accord and that he may also seek help from the Fed. The Fed set up
currency swap lines in Brazil, Mexico, South Korea and Singapore last
month, providing each one of these countries’ central banks with $30
billion. A currency swap is a foreign exchange agreement between two
parties to exchange a given amount of one currency for another and,
after a specified period of time, to give back the original amounts
swapped.
Since the Fed set up swap lines with the aforementioned countries
to improve the liquidity conditions in the global financial market,
Turkish officials have been debating whether such assistance would
help Turkey. Some economists said the countries the Fed set up swap
lines with had the "backyard of the United States" status. They
claimed that striking such a deal with the European Central Bank,
or ECB, would be more suitable for Turkey. Meanwhile, all economists
agreed this is a short-term solution and what Turkey really needs is
resources it can benefit from for a longer period of time, in order
to solve its medium-term funding needs.
Other swap lines The Fed has in the past also set up currency swap
lines with Australia, Canada, Denmark, the United Kingdom, Japan,
New Zealand, Norway, Sweden, Switzerland and with ECB..
Such an opportunity provided by the Fed would last only six months
and that certainly is not enough for Turkey, which needs a fund
inflow that would last a couple of years, said an analyst. In the
end, many agree just striking a swap line deal with the Fed would
not be enough to meet Turkey’s need for funds. A new resource-based
deal with the IMF is a must, they say. That is required to maintain
the fiscal discipline. The path to luring in further foreign capital
also lies in striking a new deal with the IMF.
Another economist raised a question that may come up in the possibility
of a Fed deal as Barack Obama takes over as U.S. president: "What if
Barack Obama brings up his Armenian genocide bill [against Turkey]
in the agenda? Then what would you do?" he asked, referring to the
possible political implications.
From: Emil Lazarian | Ararat NewsPress
