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Turkey bailout could dwarf $50 billion loan Argentina just got

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Erdogan lira turkey istanbul currency crisis.JPG
Turkish
Prime Minister Tayyip Erdogan (left) and central bank governor
Durmus Yilmaz show Turkish banknotes during a news conference in
October, 2008.

Stringer/Reuters

  • Turkey sharply raised its benchmark interest rate this
    month.
  • But it may need a hefty credit line to avoid defaults
    and capital flight.
  • Macquarie strategists estimate it needs $75 billion —
    more than Argentina recently received from the
    IMF. 

Turkey may need more than just rate hikes to shore up
capital. 

Specifically, it needs about $75 billion, according to Macquarie
strategists Thierry Wizman and Gareth Berry, or about 1.5
times what the International Monetary Fund
agreed to loan Argentina
this summer — the largest bailout
deal in its history.

“President Erdogan isn’t likely to allow another rate hike,” the
strategists said, adding that Turkey may need to rely on new
official foreign credit to convince investors to fund its
short-term financing needs and avoid a wave of defaults.

Turkey has $180 billion in external debt that will come due
soon, with a large portion of it in foreign currency. Meanwhile,
banks are liable for another $160 billion in foreign exchange
deposits.

At about $100
billion
, Turkey’s foreign exchange reserves look relatively
inadequate. Even if its current account deficit were to go to
zero, Wizman and Berry said, the country still needs least $155
billion in official reserves or credit to be safe and avoid
capital flight.


Screen Shot 2018 09 25 at 2.19.33 PMMacquarie

Under
criteria
outlined by the IMF, it appears Turkey could qualify
for an aid program similar to the one Argentina scored. But
President Recep Tayyip Erdogan, a populist who pushes
anti-Western rhetoric and unorthodox views of the economy, would
be reluctant to deal with the red tape that often comes with an
official credit line. 

“Turkey [has] little chance of working a deal with the
IMF,” said Steve Hanke, an applied economics professor at Johns
Hopkins University. 
“The IMF would demand to run the
show in Turkey, this would be totally unacceptable for Erdogan.”

Of course, it may not even matter if Erdogan were to warm up to
the IMF. The US could block Turkey from receiving an official
credit line, especially amid a diplomatic rift between the NATO
allies. President Donald Trump has in recent months stepped up
sanctions and tariffs against Ankara over the controversial
imprisonment of
Andrew Brunson
, an American pastor.

Brad Setser, a senior international economics fellow at the
Council on Foreign Relations, recently
wrote
that the real question at hand is whether Turkey
could find a geo-strategic coalition that could lend enough to
support its economy without IMF assistance.

“The answer, I think, hinges on how much money Turkey needs—and
of course just how much risk a coalition of the ‘friends of
Turkey’ might be willing to take,” Setser wrote. 

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