Turkey Gets $51 Billion Pledge of Economic Support From UAE

The United Arab Emirates pledged to ramp up support for Turkey’s embattled economy, with the two countries agreeing provisional deals they say could be worth more than $50 billion.

(Bloomberg) — The United Arab Emirates pledged to ramp up support for Turkey’s embattled economy, with the two countries agreeing provisional deals they say could be worth more than $50 billion.

Turkish President Recep Tayyip Erdogan and UAE counterpart Mohammed bin Zayed oversaw the signing of several memoranda of understanding in Abu Dhabi on Wednesday. The agreements include wealth fund ADQ possibly buying as many as $8.5 billion of bonds from Turkey to fund reconstruction efforts following devastating earthquakes in February.

The breakthrough is the culmination of a rapprochement following years of hostility between Turkey and Gulf states such as Saudi Arabia and the UAE. Erdogan has sought to mend ties with the petrostates in an effort to attract the billions of dollars he needs to put Turkey’s finances on a more secure footing and fund a record current-account deficit.

Turkey’s dollar bonds rallied the most in emerging markets on Thursday. The government’s debt maturing in 2047 rose to almost 71 cents, bringing the yield below 8.7% for the first time since May.

The MOUs are worth a total of $50.7 billion, according UAE state media and Turkish officials. They cover investments in everything from nuclear energy to clean hydrogen, petrochemicals, space exploration and defense.

“The teams of both nations are working on the details,” the UAE’s Minister of Economy Abdulla bin Touq Al Marri said to Bloomberg Television on Thursday. “I think those will come very soon. The UAE is known for deploying its funds very quickly.”

Abu Dhabi’s ADQ, chaired by UAE National Security Advisor Tahnoon bin Zayed, said the “earthquake relief” bonds would focus on building houses for displaced people in central and southern Turkey. WAM said they would be sukuk, or Islamic debt instruments. Turkey estimates the economic toll from the quakes is over $100 billion.

ADQ, which has around $160 billion of assets, also said it signed a $3 billion agreement with Turkey’s Export Credit Bank to finance companies planning to export goods to the UAE and other markets.

The Turkish lira strengthened about 0.5% against the dollar after the announcement. It pared gains on Thursday, trading at 26.87 by 4:20 p.m. in Istanbul. The currency is near a record low and down more than 30% this year.

Erdogan visited Saudi Arabia and Qatar this week before heading to the UAE. The Gulf tour followed his reelection in May that extended his rule into a third decade. Since then, he’s promised economic reforms to end a cost-of-living crisis and build Turkey’s dwindling buffer of foreign reserves.

The UAE announcements were the most significant to come out of Erdogan’s trip. With Saudi Arabia, Turkey clinched a deal to sell military drones.

Turkey was trying to attract $25 billion in investments from Gulf countries, Turkish officials familiar with the matter said previously. The UAE, Saudi Arabia and Qatar — enjoying a windfall from soaring oil and gas prices in the past three years — have already provided foreign exchange to the Turkish central bank through swap agreements and direct deposits.

Foreign investors have fled Turkey in droves in recent years, with most blaming Erdogan’s relentless focus on boosting growth and ultra loose monetary policy for triggering a surge in prices. Inflation has slowed since last year, but still stands at almost 40%.

Finance Minister Mehmet Simsek, a former Merrill Lynch bond strategist who Erdogan appointed last month, has promised to reverse some of those policies.

The central bank raised its benchmark interest rate by 250 basis points to 17.5% on Thursday, taking its cumulative hikes since the election to 900 basis points. That’s in line with what Simsek has said will be a “gradual” approach to shifting economic and monetary strategy.

Many analysts, including those at Goldman Sachs Group Inc., have said the central bank is moving too slowly and needs to ensure inflation-adjusted rates are above zero, rather than keeping them well within negative territory.

“We have already taken strong initial steps to improve public finances and to reduce persistent high inflation through a multi-pronged strategy,” Simsek said in a speech in Abu Dhabi. “It’s encouraging to hear that our UAE counterparts believe in our program.”

–With assistance from Omar Tamo.

(Updates with bond price moves.)

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