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https://www.ft.com/content/4d93df16-9c8 ... wBHaJ1-qFE Laura Pitel in Ankara and James Politi in Washington 6 HOURS AGOPrint this page23
A senior American official has played down Turkey’s prospects of securing dollar financing from the US Federal Reserve, dismissing speculation that a charm offensive towards Washington could help it land American support.
Turkey, which has a large foreign financing requirement and low foreign currency reserves, has held talks with central banks across the G20 group of nations in an attempt to find the funds it needs to shore up its $750bn economy.
The Federal Reserve has rolled out temporary dollar swap lines with 14 central banks across the world in recent weeks in an attempt to pump dollars into the markets as part of an unprecedented effort to ease the strain on the global financial system caused by the coronavirus pandemic. However, Turkey has not so far been included.
David Satterfield, the US ambassador to Ankara, confirmed on Thursday that Turkey was “in direct contact” with the Fed about securing a dollar swap line. But he said that the eligibility criteria were solely financial, batting away speculation among investors and analysts that recent overtures by President Recep Tayyip Erdogan towards US president Donald Trump could help its case.
“Turkey has been in direct contact, as have many states, with the Federal Reserve,” Mr Satterfield told a video briefing organised by the Atlantic Council, a think-tank. “There are certain requirements set by the open market committee of the Fed with respect to potential eligibility. They are financial monetary requirements and conditions; they are not politically linked.”
Turkey’s president Recep Tayyip Erdogan last year sacked the central bank governor, complaining that he ‘wouldn’t follow instructions’ © Turkish Presidency/AP
The US central bank has traditionally set a high bar for establishing swap lines with its counterparts around the world, typically only giving them to central banks with a strong record of independence and solid economic fundamentals.
Mr Erdogan is notorious for his interference in the running of Turkey’s central bank. After taking to the helm of a powerful new system of governance in 2018, he vowed to take greater control of monetary policy. Last year he sacked the bank’s governor, complaining that he “wouldn’t follow instructions” about the need to slash interest rates.
Brad Setser, a former US Treasury official now at the Washington-based Council on Foreign Relations, said that there was “no way” that Turkey would meet the Fed’s economic requirements.
“Among other things, the Federal Reserve has indicated that it evaluates its swap counterparties on a set of criteria that includes the independence of the central bank,” he said. “I also would suspect that the Federal Reserve would also have concerns about the low level of Turkey's reserves and its monetary policy framework.”
But others were sceptical of Mr Satterfield’s insistence that politics would play no role.
Michael Harris, founder of the advisory service Cribstone Strategic Macro, argued that the US ambassador could never say anything different in public. “The Fed needs to remain insulated from being perceived as a political tool of foreign policy,” he said.
Mr Harris said that Turkey’s need for dollar liquidity presented an opportunity for the US to seek a “recalibration of the relationship”, adding: “If Turkey does get a Fed swap line, it’s going to be for geopolitical reasons and it’ll be because Turkey has made concessions behind the scenes.”
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Ankara sought to smooth over longstanding tensions with Washington this week by sending two donations of medical supplies to the US. It also quietly dropped a promise to activate a Russian S-400 air defence system in April — although one of Mr Erdogan’s senior advisers said on Thursday that it was merely a postponement.
Mr Harris said that the recent shipments of medical aid were “most likely” part of an effort to secure a swap line. He suggested that Turkey would have to “jump through some hoops” in order to secure help from the Fed, such as a “big decision” on the S-400.
He added that Ankara “may also need to rectify a lack of collateral with the Fed” caused by the repatriation of Turkish gold from the US in recent years.
Mr Satterfield stressed during Thursday’s discussion that the US remained worried about Turkey’s S-400 purchase, which he said exposed the country to the “very significant possibility of congressional sanctions”. He added: “We do not have in our possession the assurances from the government of Turkey that would allow us to mitigate those concerns.”
Speaking at the same event, Ibrahim Kalin, an aide to Mr Erdogan, insisted that Turkey had no plans to abandon its plans to deploy the S-400. “There has been a delay because of the coronavirus but it will move forward as it was planned,” he said.
The Fed declined to comment.
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