Spotlight: Turkey seeking swap lines to protect economy from liquidity crunch

0 Comment(s)Print E-mail Xinhua, May 19, 2020
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ISTANBUL, May 18 (Xinhua) -- Turkey is in drastic need of liquidity amid the COVID-19 pandemic and is hoping to secure swap lines with several countries to protect its economy and currency, experts said.

Turkey's lira traded strongly against the U.S. dollar on Monday, maintaining a firmer trend on optimism over possible swap lines being established with foreign central banks after the currency hit an all-time low 10 days ago.

The lira stood at 6.86 against the dollar after it touched 7.26, the lowest level on record in the history of the emerging nation.

If Turkey cannot secure tens of billions of dollars worth of funding to address short-term liabilities, analysts say, it risks a currency crisis similar to 2018, when the lira lost nearly half of its value.

According to reports, Turkish treasury and central bank officials have held bilateral talks with counterparts from Japan and the United Kingdom (UK) on setting up currency swap lines, and with Qatar and China on expanding existing facilities.

Since last year, the Turkish government has spent its forex buffer to shore up the national currency.

To establish swap lines, Ankara's first target was the U.S. Federal Reserve, however American officials have suggested that this would not be possible.

Observers said that Turkey, which had depleted its central bank's reserves before and during the coronavirus pandemic, could not meet the Federal Reserve's criteria for a swap line agreement.

"It is unlikely to happen with the Federal Reserve which has traditionally set a high bar for establishing swap lines, but reports suggest that a deal is a possibility with the UK central bank or the Japanese central bank, that is why there is a positive expectation in markets," Enver Erkan, an economist at Istanbul's private investment company Tera Yatirim, told Xinhua.

"Turkey is in need in the short term of foreign currency entries because of the outbreak that has caused a considerable drop in exports and tourism revenues," Erkan said, noting that the amount of the swap line was expected to be between 15 and 30 billion dollars.

The coronavirus pandemic has piled added pressure on Turkey which has a debt-lag denominated in foreign currencies, triggering predictions of a full-year recession.

As of February, Turkish banks and companies had over 155 billion dollars in short-term foreign currency debt, according to the Turkish central bank.

Turkey has been gradually easing coronavirus restrictions and trying to restart its retail and manufacturing sectors, but tourism and exports still need time to recover, industry professionals said.

But as Turkish Minister of Treasury and Finance Berat Albayrak announced, the economy will rebound with positive growth in 2021. Enditem

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