Good Article on steps taken so far to stop Lira collapseQatar Comes to Rescue as Turkey Moves to Avert Financial Crisis
2018-08-15 16:19:43.82 GMT
By Onur Ant and Asli Kandemir
(Bloomberg) -- President Recep Tayyip Erdogan has found a
benefactor to help pull Turkey from the brink of a financial
crisis as Qatar promised to invest $15 billion in the country.
The lira extended gains to 6 percent after Qatar’s Emir
Sheikh Tamim Bin Hamad Bin Al Thani made the pledge after a
3-1/2-hour meeting with Erdogan in Ankara on Wednesday. It
follows a string of urgent steps Erdogan has taken to protect
its economy from an escalating feud with U.S. counterpart Donald
Trump over an American pastor held in Turkey.
With the pledge, Turkey is reaping the rewards of standing
by its wealthy Arab ally while Gulf neighbors led by Saudi
Arabia cut off diplomatic ties with Qatar last year. Since
tightening his grip on power in June elections, Erdogan’s
relations with the U.S., a NATO ally, have deteriorated.
"That Turkish support for Qatar during the stand-off with
Saudi Arabia finally paid off,” Tim Ash, a senior emerging-
market strategist at BlueBay Asset Management LLC in London,
said by email. “Let’s see if the Chinese and Russians put some
money on the table."
While he seeks new alliances, Erdogan is also trying to
repair his relationship with other traditional allies in Europe,
such as Germany. The two countries fell out during the election
over Berlin’s refusal to let Turkish politicians campaign on
German soil. Erdogan spoke with German Chancellor Angela Merkel
on Wednesday and will speak to French President Emmanuel Macron
on Thursday.
Detained Pastor
“There isn’t much that Germany can do,” Holger Schmieding,
the chief economist at Berenberg in London, said by phone. “Any
help that Germany could give right now would be small compared
to the problems at hand.”
Another potential flash point this week will be an appeals
court decision on the fate of Andrew Brunson, the evangelical
pastor Erdogan accuses of aiding a coup attempt against him two
years ago. He’s being held under house arrest in Turkey. A lower
court already turned down his lawyer’s request to free him and
the U.S. has said it won’t negotiate until he’s released.
While the lira extended gains after the Qatari aid, it had
already been rising on a series of measures from the nation’s
banking regulator starting late Tuesday that made it harder for
traders to bet against the lira and eased rules on restructuring
troubled loans that have already topped $20 billion.
Trading Limits
Most notably, the regulator cut by half the amount of
currency swap transactions banks can participate in to 25
percent of shareholder equity, after imposing a 50 percent curb
on Monday. By driving up short-term borrowing costs, this makes
it less appealing for investors, like hedge funds, to borrow
liras on the offshore swap market so they can bet against, or
short, it.
Investors, though, continue to demand higher interest rates
-- something the central bank may struggle to deliver because
it’s been under constant pressure from Erdogan to do just the
opposite. While the lira climbed 5.3 percent to 6.0294 per
dollar by 7:06 p.m. in Istanbul, it’s still down 18 percent this
month.
So far, the steps "are aimed at the symptoms of recent lira
weakness and not the cause," said Nigel Rendell, an analyst at
Medley Global Advisors LLC in London. "The cure for a
persistently weak currency is not rocket science - nor is it
liquidity measures and policy tweaks - it is higher interest
rates."
Markets weren’t all rosy. The cost of insuring Turkey’s
sovereign debt against default -- already higher than Pakistan
and Greece -- increased as the standoff between Turkey and the
U.S. worsened. Bonds fell, pushing the yield on 10-year notes up
nine basis points to 21.46 percent.
140% Tariffs
Turkey announced on Wednesday a string of new tariffs
ranging from 50 to 140 percent on rice, alcohol and cars from
the U.S. in retaliation for Trump’s move to slap taxes on
Turkish steel and aluminum imports last week. The punitive steps
come after Erdogan called on Turks to boycott American
electronics, like the iPhone, which have in any case become a
lot more expensive as the lira lost almost 40 percent of its
value this year.
The collapse, which intensified this month and triggered
contagion that spread across emerging markets, is making it much
more costly for businesses to refinance at least $16 billion in
bonds denominated in foreign currencies that are due by year-
end, according to calculations by Bloomberg.
It total, companies have $217 billion in net foreign-
exchange debt, equal to about a quarter of gross domestic
product, according to central bank data. While officially the
bad debt ratio at Turkey’s banks is just 3 percent, lenders are
in the process of renegotiating upwards of $20 billion of loans
to try to prevent them from going into default.
Against this backdrop, the nation’s banking regulator said
late Tuesday that lenders can now extend maturities on or
refinance loans, issue new debt to help troubled companies, and
seek new collateral to protect themselves. They can also demand
debtors sell assets to repay loans.
It also said that until markets "normalize," it would
temporarily stop applying the effect of day-to-day losses on the
securities held by banks to their capital adequacy ratios.
--With assistance from Tony Czuczka.