Erdoğan turns to U.S., Europe to stabilise ailing economy – analyst

Turkish President Recep Tayyip Erdoğan is looking to resuscitate the country’s recession-bound economy and his only option appears to be U.S. and European financial institutions, which are expecting Ankara to meet their strict criteria if it wishes to establish swap lines, wrote Dan Arbell, an associate fellow the International Institute for Strategic Studies.

Turkey’s strongman is maintaining "a charm offensive vis-à-vis the US and Europe in the hope that it can secure more funding in the coming weeks, ahead of a second wave of COVID-19 that may come in the autumn,’’ Arbell said.

After facing significant monetary and financial pressures over the past few months due to the COVID-19 pandemic, a pummelling of its exports, closure of its tourism industry, and significant pressure on the Turkish lira, Ankara has turned to external assistance.

But attempts by the Turkish government to secure access to U.S. swap lines failed last month when the Federal Reserve cited the need for “mutual trust.” The European Central Bank has also rejected Ankara’s request.

Despite these developments, Erdoğan continues to "reject outright experts’ recommendations to accept the support of the IMF,” the article said, recalling the Turkish president’s unpleasant memories of IMF’s 1998 intervention in the country’s economy.

It is in this state of mind that Erdoğan last month revived Turkey’s bid for EU membership, citing the coronavirus pandemic as a clear demonstration of the need for unity.

"We must make good use of the opportunities these tough days will present in order to revitalize the Turkey-EU relations. I hope that the EU, which has assumed a discriminative and exclusionist attitude toward our country on various issues to this date, has now understood that we are all [in] the same boat," he said on May 17.

But EU officials are clear that Turkey still needs to meet a certain number of financial and political criteria to join the bloc. 

Meanwhile, Erdoğan continues to reject the IMF option as U.S. and European financial institutions are not relaxing their strict criteria for establishing swap lines, Arbell wrote, and European financial institutions are not easing their strict criteria for establishing swap lines. 

The Turkish president was handed a temporary financial lifeline by Qatar in the way of a tripling of its currency swap agreement with Turkey to $15 billion, but the country "will need to secure additional funding soon,’’ the article said.

According to Arbell, the slight increase in the lira’s value is set to face a test in the very near future.