Turkish President Recep Tayyip Erdogan has picked the wrong guy for a fight. While Saudi Arabia could bully Canada over a petty issue concerning human rights, Turkey has miscalculated when it thought Trump would not care about American Pastor Andrew Brunson who has been detained since 2016 in Turkey.
Brunson, who is from North Carolina and has worked in Turkey for more than 20 years, has been accused of helping the group Ankara claims was behind a failed military coup in 2016. The pastor, who has denied the charges, faces up to 35 years in jail if found guilty. Last month, Trump threatened to slap “large sanctions” on Turkey if it refuses to free Brunson.
Washington’s threat prompted an angry response from Ankara. Erdogan’s spokesman, Ibrahim Kalin, called Washington’s threats unacceptable and damaging to the U.S.-Turkey alliance. The escalation from the U.S. was triggered a day after a Turkish court ordered that Pastor Brunson be moved to house arrest after 21 months in detention.
Escorted out of prison in the coastal city of Izmir, Brunson’s lawyer said he was ordered to wear an electronic monitoring bracelet. Washington had actually expected the American pastor to be freed at his trial last week because after rounds of U.S.-Turkish talks, United States officials was under the impression that the deal was in place.
Trump unleashed his tweet, after Turkey refused to free Pastor Brunson – “The United States will impose large sanctions on Turkey for their long time detainment of Pastor Andrew Brunson, a great Christian, family man and wonderful human being. He is suffering greatly. This innocent man of faith should be released immediately!”
President Trump and Vice President Mike Pence, a devout Christian, didn’t need to try too hard to teach Erdogan a lesson. Even before Trump’s threat of imposing sanctions on Turkey, the country was already in quite a mess. The Turkish currency – lira – has lost one-fifth of its value this year over concerns about the central bank’s ability to rein in double-digit inflation.
I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!
— Donald J. Trump (@realDonaldTrump) 10 August 2018
Last month, Erdogan named his son-in-law, Berat Albayrak, as the country’s finance minister after being sworn in to another five-year term. But the financial markets were not impressed and as a result, the country’s stock market and currency Lira fell. The financial markets were concerned that nepotism (and dictatorship for that matter) in the upper echelons of power is getting out of control.
The U.S. subsequently announced on August 1 sanctions on Turkey’s justice and interior ministers, prohibiting U.S. citizens from doing business with them. The final straw that broke the camel’s back happens today after President Donald Trump authorized the doubling of metals tariffs on Turkey – a whopping 20% on aluminium and 50% on steel.
All hell breaks loose, with the Turkish Lira totally collapsed to an all-time low against the U.S. dollar. It crashes close to 16.63% as of time of writing. The first wave of Lira selling came early Friday after a Turkish delegation returned from the United States with apparently no progress on the detention of a U.S. pastor. However, Erdogan refused to be intimidated.
Erdogan told his supporters – “There are various campaigns being carried out. Don’t heed them. Don’t forget, if they have their dollars, we have our people, our God. We are working hard. Look at what we were 16 years ago and look at us now.” Erdogan also claimed Turkey was facing an “economic war” but promised the country would respond to those countries who had started it.
He also urges the Turks to sell dollars and gold and buy Lira in what appears to be a desperate attempt to support the local currency. President Erdogan told his people – “Change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks. This is a domestic and national struggle.”
Of course, it has gotten worse. The Turkish president statement is seen as a desperate call, hence the sell-off escalates. The last thing the financial markets need is a leader appealing his people to help defend the currency. It is a sign of panic, not to mention a signal that the Central Bank of Turkey can no longer defend the national currency Lira.
Alec Young, managing director of global markets research at FTSE Russell, said – “Currency weakness is fuelling inflation and making it more expensive for Turkey to repay its large foreign currency denominated debt.” The latest estimates from the IMF show that the total amount of Turkish debt payable in other currencies is more than 50% of the country’s GDP (gross domestic product).
Inflation in the country has been rampant with consumer prices rising almost 16% in July alone. This year, the Turkish Lira currency has fallen more than 40%. Turkey’s sovereign dollar-denominated bonds tumbled with many issues trading at record lows. Naturally, investors are busy today selling off shares in European banks with large exposure to the Turkish economy.
But this is just the beginning. The Lira’s continuous depreciation drives up the cost of imported goods from fuel to food for ordinary Turks and if not controlled, Erdogan could get a taste of what Iranian President Hassan Rouhani and Supreme Leader Ali Khamenei are facing – nationwide demonstration against the government.
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August 11th, 2018 by financetwitter
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