May 5, 2020 | War on the Rocks
Trump Should Not Fall For Erdogan’s S-400 Gambit
May 5, 2020 | War on the Rocks
Trump Should Not Fall For Erdogan’s S-400 Gambit
Last week, Turkish President Recep Tayyip Erdogan sent two military planeloads of medical aid to the United States, alongside a letter praising “the spirit of solidarity” he has displayed during the COVID-19 pandemic. Erdogan hopes that President Donald Trump will return the solidarity by allowing him to tap into Washington’s coffers — namely, access to U.S. dollars provided by the Federal Reserve. If Trump agrees to such a quid pro quo, he will not only buy the world’s most expensive personal protective equipment, but also help pay for a NATO member’s purchase of sanctioned Russian military hardware.
On April 20, Turkey made public its decision to postpone the planned April activation of the S-400 air defense system it received from Russia last July, citing delays related to the COVID-19 outbreak. Erdogan’s latest move results from his growing desperation to secure Western financing amid a pandemic-induced economic crisis, and is part of a broader charm offensive to convince Trump to grant Ankara a financial lifeline in the form of a swap deal with the U.S. Federal Reserve.
Given that the Turkish leader is still committed to activating the S-400 batteries once the COVID-19 crisis is over, Trump should not fall for Erdogan’s ploy. Instead of bailing out the Turkish president with a no-strings-attached swap deal, Trump should direct Erdogan to the International Monetary Fund to sign a comprehensive loan agreement with policy conditions that ensure good governance, transparency, accountability, and anti-corruption measures. If the Turkish president accepts this approach, it will ensure that the funds serve the Turkish citizens in need rather than his vanity projects or the purchase of Russian military hardware. If Erdogan rejects an offer from the International Monetary Fund, it will demonstrate that he continues to put his personal and political interest above the national interest.
Turkey’s Purchase of Russian S-400 Air Defense Systems
Turkey first disclosed its ongoing talks with Russia to procure the S-400 surface-to-air missile system in November 2016, four months after an abortive coup, about which the Turkish government pushed conspiracy theories blaming the United States. Erdogan saw the S-400 as a failsafe protecting him from Turkey’s own F-16 jets, which had posed a significant threat at the hands of putschist pilots. This move was also in line with his ongoing pivot toward and collusion with other authoritarian regimes, including Russia, Iran, and Venezuela.
Ankara signed the $2.5 billion S-400 deal with Moscow in September 2017 — a step Turkey’s Western allies reasonably interpreted as a pivot from NATO toward Russia. Despite repeated and longstanding warnings from Washington, Turkey received the first S-400 battery in July 2019, the second in September 2019, and 120 guided missiles in January 2020. Within the same month, Turkish air force officers, who had been sent in May 2019 to Russia for training, reported to their S-400 posts at Ankara’s Murted Airfield Command.
Turkey’s actions forced the United States to cancel the training of Turkish F-35 pilots as of June 2019 and remove Ankara from the F-35 program one month later. In December 2019, U.S. Congress pushed for sanctions, which signaled that it may act unilaterally if Trump fails to do so.
Erdogan remained defiant, as Turkey’s pro-government media continued with proud displays of the S-400 system. This joyous mood, however, came to an abrupt end in February 2020, when clashes between Turkish troops and Russia- and Iran-backed forces loyal to Bashar al-Assad in northwest Syria’s Idlib region resulted in the deaths of 60 Turkish soldiers. It was particularly embarrassing that the heaviest casualties on Feb. 27 came from Russian airstrikes while the S-400 batteries lay idle in Ankara.
This turn of events not only tested relations between Erdogan and his Russian counterpart President Vladimir Putin, but also raised hopes in the West for a warming of ties between Ankara and Washington. As Erdogan realized that he could not rely on the S-400 system for protection against Russian and Syrian regime strikes in Syria, he turned once again to Turkey’s NATO allies, calling for Patriot missiles from the United States.
While rumors about Turkey’s possible relocation of the S-400 batteries to the Syrian border did not materialize, Ankara started deploying the indigenously produced HISAR and U.S.-built MIM-23 HAWK (Homing All the Way Killer) surface-to-air missiles in Idlib in March and April, respectively. This was yet another sign that Erdogan’s ill-advised pivot from NATO hardware to Russian systems was neither wise nor sustainable from a security perspective.
Pandemic and Turkey’s Economic Crisis
The Turkish president’s deepening partnership with Russia suffered yet another blow with the onset of the global coronavirus pandemic, testing this time the financial wisdom of his pivot to Moscow. As of April 20, Turkey has overtaken China as the country with the highest number of confirmed COVID-19 cases outside the United States and European Union. Shortly after, it became the seventh country globally to report more than 100,000 cases. There are concerns that Turkey’s public health crisis is even more severe, given strong suspicions about Ankara’s deliberate undercounting of the number of infections and fatalities.
The novel coronavirus outbreak has also exacerbated the country’s existing economic woes. The Turkish lira plunged 18 percent year to date against the U.S. dollar, putting further strain on the country’s overleveraged nonfinancial companies that have foreign exchange liabilities totaling some $300 billion. Since January 2019, Turkey’s central bank appears to have burned through $65 billion of its reserves to shore up the faltering currency. TD Securities, a Canadian investment bank, predicts that at the current rate of depletion, Turkey’s central bank would exhaust its foreign currency reserves excluding gold by mid-June. A Morgan Stanley study shows that in the event of a prolonged crisis, Turkey would be the most vulnerable to a balance-of-payments crisis among all major emerging markets since it has the lowest percentage of foreign exchange reserves relative to external financing needs.
Unfortunately for Turkey, its financial troubles can only be addressed with the support of the United States, the International Monetary Fund, and major European countries — the very countries and institutions that Ankara has alienated with its authoritarian turn and purchase of Russian S-400 missiles. Erdogan is reluctant to sign a “Stand-By Arrangement,” a lending instrument of the International Monetary Fund that helps countries overcome their balance-of-payment problems, since such a bailout deal would come with strict policy conditionalities concerning good governance, transparency, accountability, and anti-corruption. These conditions, Erdogan believes, make it impossible to pursue an independent policy and undermine his one-man rule. This leaves the Turkish president with only two choices to avoid default: introducing capital controls or cutting swap deals — a temporary arrangement allowing Ankara to borrow foreign currency from the Federal Reserve or other Western central banks in exchange for Turkish liras.
Erdogan is also aware that Russia, which has proven to be a problematic security partner, is equally ineffective as an economic partner. Despite its favorable foreign exchange position, the Kremlin has no history of offering financial lifelines to Turkey during the latter’s financial crashes, and had a questionable record in the self-serving way it came to the Maduro regime’s aid in Venezuela.
Instead, Ankara reached out to Washington rather than Moscow on April 10 to secure a swap line with the Federal Reserve, which most analysts see as an unlikely development, given concerns about Turkey’s central bank independence, low level of reserves, and its unsound monetary policy framework. David Satterfield, the U.S. ambassador to Ankara, also reminded that there are “certain requirements set by the open market committee” of the Federal Reserve with respect to potential eligibility for swap lines, but they are “financial monetary requirements and conditions; they are not politically linked.” The U.S. Treasury’s Exchange Stabilization Fund does offer the secretary of the Treasury considerable political leeway, pending the president’s approval, to use its $93 billion assets, as it had done so during Mexico’s 1994 peso crisis. However, Ankara’s bailout need was close to the fund’s total assets even before the COVID-19 meltdown.
Erdogan, nevertheless, still maintains hope for a lifeline from Trump. Michael Harris, the founder of the London-based emerging markets advisory service Cribstone Strategic Macro, believes that Turkey could receive a Federal Reserve swap line for “geopolitical reasons” as Turkey’s need for dollar liquidity presents an opportunity for a “recalibration of the relationship.”
The Erdogan government has also been trying to secure swap deals with other NATO member states. On April 19, Turkish officials reported their outreach to the United Kingdom. Ankara has likely been in contact with other Western central banks, as indicated by the April 30 announcement by the Turkish central bank governor that they are holding talks on swap lines with “several central banks.”
Furthermore, Ankara also fears that any potential U.S. sanctions, as envisioned by the National Defense Authorization Act of December 2019, would be a lethal blow to the Turkish economy. In August 2018, the Global Magnitsky sanctions and punitive steel and aluminum tariffs Trump imposed on Turkey for its unjust imprisonment of a North Carolina pastor triggered a currency crisis, showing how vulnerable the country’s economy is to U.S. pressure.
Given Turkey’s COVID-19-induced economic downturn since March, Ankara’s plans to activate the S-400 batteries in April, which Turkey’s defense minister announced in September 2019, couldn’t have come at a worse time. As a result, the Turkish president has treated transatlantic ties with much more caution, which prompted Kadri Gursel, a leading Turkish journalist, to ask whether the pandemic has been good for the health of U.S.-Turkish relations.
To increase its odds of securing a Federal Reserve swap line and alleviate investor fears about looming sanctions, Turkey once again reached out to the United States on April 14 to form an S-400 working group that also includes NATO. Six days later, Erdogan had a phone call with Trump, where he repeated his ask for a swap line. To bolster his bid, the Turkish president sent two military planeloads of medical aid, including masks, face shields, and disinfectants, to the United States in late April, accompanied by a letter urging the Congress and the U.S. media to “better understand the strategic importance” of U.S.-Turkish relations.
Ankara’s proposal for a working group was a symbolic diplomatic gesture since Washington had earlier refused a similar offer in May 2019, emphasizing that the “unacceptable risk” the S-400 would create “cannot be mitigated.” As Bradley Bowman and Andrew Gabel warned last April, the co-location of the S-400 and the F-35s in Turkey “would provide Moscow a myriad of opportunities to rehearse detecting and shooting down F-35s.” The following month, Aaron Stein similarly called for Washington to prepare for a future in which a NATO member “operates an advanced Russian system that could help Russia glean useful data about the alliance’s air operations.”
American Policy Options
Trump should not mistake Erdogan’s latest tactical turn as his abandonment of the S-400 system. Turkey will not pivot away from Russia and back to NATO and transatlantic values. In fact, Erdogan’s spokesperson announced on April 30 that despite the delay caused by the coronavirus pandemic, the S-400 activation “will move forward as it was planned.” Even the temporary postponement of the activation means little given that Turkey has already tested the S-400 system against F-16s in November 2019, prompting criticism from U.S. Secretary of State Mike Pompeo. As leading Turkish expert Yoruk Isik highlights, the S-400s are already active at the “initial operational capacity,” but they are not yet at “full operational capacity.”
In the coming months, the tenor of U.S.-Turkish relations may depend on Ankara’s decision to avoid full operational capacity for the S-400, and persuade Washington that the current state of the weapon systems can be considered as “nondeployment.” However, optimists who are encouraged by Erdogan’s ongoing COVID-19 charm offensive and expect him to simply mothball or return the system are likely to be disappointed yet again. The Turkish president’s recent turn as he scrambles to secure a financial lifeline from the United States and other NATO member states is a tactical necessity given the country’s precarious economic position — It does not represent a strategic shift in any meaningful sense. Whenever the Turkish economy recovers, Ankara will continue to align itself more closely with Russia and other NATO adversaries, and will deploy the S-400.
Trump should avoid falling for Erdogan’s ploy and instead direct him to the International Monetary Fund. If the U.S. president makes the mistake of granting his Turkish counterpart a no-strings-attached swap line with the Federal Reserve, he would save him from the strict conditionalities of a Stand-By Arrangement with the International Monetary Fund. This, in turn, would enable Turkey’s democratic backsliding, economic mismanagement, and pivot away from NATO and transatlantic values, and hence exacerbate the Turkish people’s suffering. Furthermore, such a White House-driven deal would not only hurt the Federal Reserve’s independence when it is most needed during the worst economic crisis since the Great Depression, but also force the U.S. taxpayers to pick up the tab for Erdogan’s splurge on Russian military hardware. This sure does not sound like a prudent move for an incumbent president during an election year.
Aykan Erdemir (@aykan_erdemir) is the senior director of the Turkey Program at the Foundation for Defense of Democracies and a former member of the Turkish parliament. Luc Sasseville is an intern at the Turkey Program of the Foundation for Defense of Democracies.