President Tayyip Erdogan told Turks on Friday to sell their gold and dollars to support the crumbling lira, with the currency in free fall as President Donald Trump escalated a feud with Ankara by doubling tariffs on metals imports.
The lira has long been falling on worries about Erdogan’s influence over monetary policy and worsening relations with the United States.
That turned into a rout on Friday, with the currency diving as much as 18 per cent at one point, the biggest one-day drop since a 2001 financial crisis in Turkey.
Reverberations spread through global markets, with European stock markets especially hit as investors took fright over banks’ exposure to Turkey. US stocks were also rattled.
The lira, which has lost more than 40 per cent this year, hit a new record low after Trump announced he would punish Ankara in a wide-ranging dispute. He said he had authorised higher tariffs on imports from the United States’ NATO ally, imposing duties of 20 per cent on aluminium and 50 per cent on steel.
The lira, he noted on Twitter, “slides rapidly downward
against our very strong Dollar!” “Our relations with Turkey are not good at this time!” he wrote.
An important emerging market, Turkey borders Iran, Iraq and
Syria and has been mostly pro-Western for decades. Financial
upheaval there risks further destabilising an already volatile
Without naming countries, Erdogan said supporters of a failed military coup two years ago, which Ankara says was organised by a US-based Muslim cleric, were attacking Turkey in new ways since his re-election two months ago.
Although Erdogan struck a defiant tone and warned of “economic war,” his foreign ministry called for diplomacy and dialogue to solve problems with Washington and Trade Minister Ruhsar Pekcan said “we implore President Trump to return to the negotiating table.”
The new duties on Turkey are double the level that Trump imposed in March on steel and aluminium imports from a range of countries. The White House said he had authorised them under Section 232 of US trade law, which allows for tariffs on national security grounds. Turkey’s trade ministry said the tariffs were against World Trade Organisation rules.
FOCUS ON PASTOR
While Turkey and the United States are at odds over a host of
issues, the most pressing disagreement has been about the fate
of American Christian pastor Andrew Brunson, who is on trial on
terrorism charges for allegedly supporting a group that Ankara
blames for the failed coup.
He denies the charges. Turkish officials held talks in Washington this week but there was no breakthrough. The Turkish crisis has set off a wave of selling across emerging market assets, reviving the spectre of contagion that has been the sector’s Achilles heel for decades.
The lira sell-off has deepened concern over whether over-indebted Turkish companies will be able to pay back loans taken out in euros and dollars after years of overseas borrowing to fund a construction boom under Erdogan.
His characteristic defiance has further unnerved investors. The president, who says a shadowy “interest rate lobby” and Western credit ratings agencies are attempting to bring down Turkey’s economy, appealed to his countrymen’s patriotism.
“If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks. This is a national, domestic battle,” he told a crowd in the northeastern city of Bayburt.” Some countries have engaged in behaviour that protects coup
plotters and knows no laws or justice,” he said. “Relations with countries who behave like this have reached a point beyond salvaging.”
Turkey, home to the Incirlik air base which is used by US forces in the Middle East, has been a NATO member since the 1950s. It is host to an X-band radar, a critical part of the Western alliance’s missile defense system again Iran.
Ivo Daalder, a former US ambassador to NATO and now president of the Chicago Council on Global Affairs think tank, said Turkey could grind decision-making at NATO’s headquarters in Brussels to a halt if the dispute with Trump got out of hand.
“Also completely underestimated is Turkey’s capacity to effectively shut down everything that happens in Brussels if they want to, because Brussels works on consensus and nothing, literally nothing happens without consensus,” he said.
ROOTS IN COUP ALLEGATIONS
Ankara wants the United States to extradite Fethullah Gulen, a Pennsylvania-based cleric who Turkish authorities say masterminded the 2016 coup attempt in which 250 people were killed. Gulen denies the allegation.
Brunson, an evangelical Presbyterian from North Carolina, was jailed for allegedly supporting a group that Turkey blames for the failed coup. His cause resonates with Christian conservative supporters of Trump, who could be influential as Republicans seek to retain control of Congress in midterm elections in November.
Some US officials say Turkey is holding Brunson as a bargaining chip after an executive at Turkey’s state-owned Halkbank was convicted and imprisoned in the United States in May for helping Iran evade US sanctions. Halkbank has said that all of its transactions were lawful.
Erdogan enjoys the support of many Turks even though food,
rent and fuel prices have all surged. Some economists were unimpressed by the government’s handling of the crisis. “Confidence needs to be regained. It is obvious how it will be done: since the final decision-maker of all policies in the new regime is the president, the responsibility of regaining confidence is on his shoulders,” said Seyfettin Gursel, a professor at Turkey’s Bahcesehir University.
Turkey’s sovereign dollar-denominated bonds tumbled, with
many issues trading at record lows. Hard currency debt issued by
Turkish banks suffered similar falls. New Finance Minister Berat Albayrak – Erdogan’s son-in-law – rolled out the government’s new economic plan on Friday, promising central bank independence and tighter budget discipline, but giving few details to reassure investors.