Turkey needs strong Trump backing to win Fed funding, official tells Reuters

Turkey would need a strong endorsement from U.S. President Donald Trump to have a chance of winning funds from the Federal Reserve to bolster its finances, according to a former Fed committee member.

There is significant resistance in Washington to expanding dollar swap lines, William Dudley, vice-chair of the U.S. bank’s monetary policy committee between 2009 and 2018, told Reuters.

Turkey has said it is seeking funding in the form of swaps from the Fed and other global monetary authorities to help bolster its cash reserves during the coronavirus pandemic. But despite a warm relationship between Trump and Turkish President Recep Tayyip Erdoğan, Turkey’s ties with the United States are undermined by policy differences over Syria and Ankara’s decision to purchase S-400 air defence missiles from Russia.

“You could imagine the Trump Administration weighing in in a forceful way that would affect the Fed’s thinking,” Dudley said.

But barring a firm intervention from Trump, the Fed is unlikely to relieve Ankara’s foreign cash needs due to economic challenges and volatile diplomatic relations, Dudley said.

Turkey’s central bank has used up tens of billions of dollars of its foreign currency reserves this year to help bolster the lira’s value, accelerating its efforts after the government reported the country’s first case of the coronavirus on March 11.

“It seems the reasons why the swaps are needed in Turkey do not fit into the Fed’s stated goals,” 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.

“Never say never but the bar is pretty high to extending these swaps.”

Turkey’s net foreign currency reserves stand at less than $30 billion and may be in negative territory when subtracting liabilities, which include currency swaps with state-run banks used to defend the lira. The currency fell to a record low of 7.269 per dollar last week.