ISTANBUL: President Tayyip Erdogan said on Tuesday Turkey would boycott electronic products from the United States, retaliating in a row with Washington that helped drive the lira to record lows.
The lira has lost more than 40% this year and crashed to an all-time low of 7.24 to the dollar early on Monday, hit by worries over Erdogan’s calls for lower interest rates and worsening ties with the United States. The lira’s weakness has rippled through global markets. Its drop of as much as 18% on Friday hit European and US stocks as investors fretted about banks’ exposure to Turkey.
On Tuesday the lira recovered some ground, up around 5% on the day. It was supported by news of a planned conference call in which the finance minister will seek to reassure investors concerned by Erdogan’s control of the economy and his resistance to interest rate hikes to tackle double-digit inflation.
Erdogan says Turkey is the target of an economic war, and has made repeated calls for Turks to sell their dollars and euros to shore up the national currency. “Together with our people, we will stand decisively against the dollar, forex prices, inflation and interest rates. We will protect our economic independence by being tight-knit together,” he told members of his AK Party in a speech. The United States has imposed sanctions on two Turkish ministers over the trial on terrorism charges of a US evangelical pastor in Turkey.
The lira’s plunge was turned into a rout on Friday when US President Donald Trump tweeted that Washington was doubling aluminium and steel tariffs for Turkey. Turkish Airlines also announced on Twitter that it would join a campaign circulating on social media with a hashtag #ABDyeReklamVerme (don’t give ads to America).
Erdogan said his government would offer further incentives to companies planning to invest in Turkey and said firms should not be put off by economic uncertainty. “If we postpone our investments, if we convert our currency to foreign exchange because there’s danger, then we will have given into the enemy,” he said. Although the lira won a small respite on Tuesday, investors say measures taken by the Central Bank on Monday to ensure liquidity fail to address the root cause of lira weakness.
“What you want to see is tight monetary policy, a tight fiscal policy and recognition that there might be some short-term economic pain – but without it there’s just no credibility of promises to restabilise things,” said Craig Botham, Emerging Markets Economist at Schroders.
Published in The Express Tribune, August 15th, 2018.