Desperate for assistance as its foreign currency reserves tumble, Turkey has appealed to the US for a dollar swap line, but experts say the US Federal Reserve is unlikely to go ahead with the move due to Washington’s rocky ties with Ankara and US financial experts’ doubts about Turkey’s economic prospects.
“It seems the reasons why the swaps are needed in Turkey do not fit into the Fed’s stated goals,” US economist William Dudley said. “It’s also hard to imagine that the Fed would run out swaps to a country that is having some bumpy relations with the United States.”
While Dudley said it was possible an agreement could be reached if the White House intervened, he doubted the Federal Reserve would make such a decision “unilaterally.”
The US has not commented on Turkey’s request for a swap line, which are generally only provided to trusted countries with high credit ratings.
Washington and NATO are at odds with Ankara over its purchase of a Russian S-400 defence system last year and conflicting aims in war-torn Syria. Turkey could face US sanctions if it activates the Russian system.
Even as Turkey’s economy falls deeper into shambles, President Recep Tayyip Erdogan has refused to reverse course on major domestic fiscal policy issues, which he has progressively taken charge of during his 18 years in power.
Erdogan ruled out any loan agreement with the IMF last month while he accused unspecified foreign powers of orchestrating a plot to ruin the Turkish economy.
“The palace has an economic doctrine of its own, very unorthodox, and not inspired by any known economic theory, which will inevitably lead to crisis,” Atilla Yesilada, a Turkey analyst for Global Source Partners, told the news website Ahval.
“Erdogan’s objections to the IMF have nothing to do with its policy recommendations. His objective has been unbridled control and impunity in governing Turkey. Any supervision or the need to account for his policies bothers him.”
Ankara hit another negative benchmark last week when its currency dropped to a record low against the dollar, with 7 lira trading for just 1 US dollar.
While Turkey’s economy has been strained for years, the distress has no doubt been worsened by the coronavirus outbreak, which has brought most businesses to a standstill and added another crisis for the government to manage.
After failing to enact early preventative measures, Turkey has one of the worst coronavirus outbreaks in the world, recording over 140,000 cases and some 4,000 deaths.
In addition to exacerbating its economic trouble, the crisis has shed light on mismanagement of Turkey’s vital health sector, which lost thousands of state employees due to Erdogan’s indiscriminate purge of suspected dissidents after 2016. One of Turkey’s most renowned virologists, Dr Mustafa Ulasli, has even been excluded from the country’s health response team due to his alleged ties with an exiled rival of Erdogan.
As Turkey’s crises mount on all fronts, Erdogan’s authoritarian tactics are leaving him as the primary target of blame, analysts say.
“Erdogan has gradually managed to reform Turkey’s constitution, consolidating power into the presidency’s hands,” Nate Schenkkan of democracy watchdog Freedom House told The Guardian. “When the country grapples with the economic fallout from coronavirus, there will be few scapegoats left to blame.”
Ironically, Erdogan is now forced to turn to a US administration he has spent years alienating for a reprieve that could prove costly.
Michel Harris, founder of the advisory service Cribstone Strategic Macro, told the Financial Times that if Turkey gets a swap line, it will be “because Turkey has made concessions behind the scenes.”