Turkey is looking to renegotiate its defence contracts so that letter of credit (L/C) and other future obligations are denominated in Turkish lira rather than US dollars.

Ankara is making the move on account of the plummeting value of the Turkish currency.

Plunging lira

In August 2017, the US dollar was trading at around 3.5 liras on the foreign currency markets. A year later, the US dollar was being traded at 6.1 liras.

Over the same one-year period, the euro-to-lira rate went up from 4 to 7.

Defence dilemma

This presents a major problem for Turkey's defence and procurement planners who are concerned that the plunging national currency could expose foreign currency-related weapons programmes to the risk of major delays or suspension.

The plummeting lira is "an uncalculated risk which now jeopardises several procurement programmes unless the lira quickly recovers to pre-crisis levels," an official told local media.

Soaring costs

Amongst the deals that officials fear may be delayed or cancelled is a US$1.5 billion deal Turkey and Pakistan signed for the supply of 30 helicopter gunships.

Turkey has also been negotiating the US$2.5 billion acquisition of Russian-made air and anti-missile defence systems.

If finalised and paid in full a year ago, that deal would have cost Turkey 8.75 billion liras. Now the deal with Russia would cost Turkey 15.25 billion liras.

More L/C woes

Last month it emerged that the deepening trade war between the US and Turkey that has largely precipitated the currency crisis is making it hard for Turkish importers to obtain the L/Cs they need to buy distillers dried grains with solubles, better known as DDGS, from US suppliers (DC World News, 20 August 2018).

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.