Turkey's Erdogan defiant in the face of US tariffs, sanction threats

Gladys Abbott
August 14, 2018

Investors have grown increasingly concerned about President Tayyip Erdogan's growing control over the economy and a deepening diplomatic rift with the USA, with the concerns snowballing into a market panic last week.

The announcement came in his address to a symposium organized by the Foundation for Political, Economic and Social Research (SETA) on the 17th foundation anniversary of the ruling Justice and Development (AK) Party.

Stocks were coming off their worst losses in a month as investors anxious about financial and economic upheaval in Turkey and the possibility it will spread to other countries.

The two governments have been arguing bitterly over Turkey's prosecution of Andrew Brunson, a pastor from North Carolina accused by the Turkish authorities of terrorism-related charges.

U.S. President Donald Trump signed a policy bill Sunday, postponing the delivery of F-35 fighter jets to Turkey, the Turkish daily Hurriyet and American news magazine Foreign Policy reported.

"Turkey is facing an economic war".

Overall this year, the lira has lost more than 40 percent against the dollar.

Albayrak also said a plan has been prepared for banks and the real economy sector, including small to mid-sized businesses, which are most affected by the foreign exchange fluctuations.

Turkey yesterday announced it would take legal action against hundreds of social media accounts it said were "creating a negative perception" of the economy amid the ongoing plummet of the Turkish lira.

Turkey has held the cleric since 2016 and has alleged that he was involved in a failed coup attempt that year.

The Turkish lira slipped 0.6 per cent in early Asian trade on Tuesday to 6.955 per dollar, though it hovered above a record low of 7.24 hit on Monday after the central bank pledged to provide liquidity.

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The Turkish lira has nosedived in value in the past week over concerns about Erdogan's economic policies and after the United States slapped sanctions on Turkey angered by the continued detention of Mr Brunson.

The Turkish Lira has slide rapidly since the United States slapped sanctions on two Turkish ministers, and extended its slide Monday morning to a new record low, at over 6.8 to USA dollar at the opening of European and Turkish markets.

An important emerging market, Turkey borders Iran, Iraq and Syria and has been mostly pro-Western for decades.

Trump has tweeted that he wants the pastor released.

The extended rout in the lira also weighed on the euro and the Australian dollar, while spurring haven demand.

Hungary, for example, has seen its currency, the forint, fall by almost 4% against the USA dollar since last Wednesday.

Some would like to see Turkey's central bank increase interest rates.

But analysts told Reuters the plunge in Turkey's Lira looked certain to push the country's economy into recession and had the potential to trigger a banking crisis in the country.

Another factor to bear in mind, though, is that - as with the pound - some of these currency falls may appear more intense because of the United States dollar's current strength.

The rout in the lira "may fuel volatility in emerging-market assets and dampen investor sentiment in the near term, as markets are already skittish", said Kerry Craig, global market strategist at JPMorgan Asset Management.

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