Turkey Turns to Gulf Ally Again With $15 Billion Qatar Swap Line

(Bloomberg) --

Turkey secured a fresh source of foreign exchange from Qatar, leaning again on the gas-rich Gulf nation that’s consistently come to the rescue as part of an alliance born after a coup attempt against President Recep Tayyip Erdogan.

Turkish and Qatari central banks are tripling the limit of their existing swap deal to $15 billion to facilitate “bilateral trade in respective local currencies and to support the financial stability of the two countries,” according to a statement Wednesday. The lira briefly swung to a gain after the announcement, before erasing its advance to edge lower against the dollar.

Erdogan Seeks Dollar Swap Line With Fed as Net Reserves Run Dry

The deal highlights the strength of an alliance that began to deepen after the failed 2016 coup, when Erdogan received backing from Qatar’s rulers. Turkey returned the favor a year later by siding with Qatar after it came under an economic boycott from a group of countries led by Saudi Arabia.

The strong ties led to Qatar pledging as much as $15 billion of investment and offering a credit line to backstop Turkey’s financial system at the height of its currency crisis in 2018. Meanwhile, Turkey has stationed troops and steadily built up a base in Qatar since 2017.

Turkey Said to Seek FX Swaps With G-20 States Including U.S.

As Turkey ran down its hard currency buffers this year, it lobbied Group of 20 nations to be included in swap lines like those the U.S. has extended to other emerging economies. But the reluctance of Western allies to offer help to Turkey may prove damaging for ties, already soured last year by disagreements over Syria and Russia.

So far unable to reach arrangements with the central banks of G-20 nations, Turkey had to seek new sources of funding elsewhere. The country already has a currency-swap deal with China, signed eight years ago and renewed every three years. China’s central bank transferred $1 billion worth of funds to Turkey in June.

“The Qataris come through” without “any news from G-20 countries,” said Timothy Ash, a strategist at BlueBay Asset Management in London.

Of the $15 billion Qataris pledged in support in 2018, a third was intended for portfolio investment and another third for project finance, according to Ash. “I don’t think much of the $10 billion non-swap part of this agreement was disbursed, so maybe the Qataris are just rolling this into swaps,” he said.

The higher limit on the swap deal could effectively raise Turkey’s reserves by up to $10 billion, adding to a stockpile whose size was called into question by investors because the central bank boosted them by including dollars borrowed from commercial lenders in its foreign holdings.

Authorities have been leaning on state lenders to flood the market with dollars, and finding a source of foreign exchange has become increasingly urgent with gross central bank reserves down $17 billion since the beginning of the year to $89.2 billion.

The lira was trading 0.3% weaker at 6.7942 per dollar at 12:48 p.m. in Istanbul, set for its first decline in 10 days.

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