Turkish Lira Plummets; Erdogan Pledges Economic War

11 August, 2018, 09:23 | Author: Regina Silva

President Trump has doubled U.S. tariffs on Turkish steel and aluminium, as the precipitous fall of the Turkish lira accelerates.

U.S. President Donald Trump said Friday he had authorized the doubling of steel and aluminum tariffs with respect to Turkey, as tensions mount between the two North Atlantic Treaty Organisation allies.

Last week, the United States imposed sanctions on Turkey's justice minister and interior minister for not releasing pastor Andrew Brunson. Put these all together, and you get a pretty classic emerging markets crisis: Money has been leaving Turkey because it can now get good enough returns elsewhere, which is then pushing down the value of their currency so much that their dollar debts are getting harder to pay back.

Trump's tweet caused a further drop in the Turkish currency, which is now down 13 percent on the day.

Ankara's rocky relations with Washington took a further hit as President Donald Trump lobbed fresh salvoes via Twitter against Turkey, plunging the sagging Turkish lira to new lows against the dollar.

The Turkish lira plunged on Friday, raising questions about the country's financial stability, as investors anxious about the president's unorthodox economic policies and a dispute with the United States that has led to sanctions.

'This is a national, domestic battle.

"This will be my people's response to those who have waged an economic war against us", he said.

The defiant tone and war rhetoric only hurt the lira more, before Erdogan's finance chief and son-in-law, Berat Albayrak, tried to ease investor concerns during a conference, saying the government would safeguard the independence of the central bank.

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Erdogan on Thursday portrayed the currency drop as a "campaign" to harm Turkey and called on the people not to worry. In his speech in the northeastern city of Bayburt, Erdogan added that he would decisively defend the country against economic attacks.

State Department Spokesperson Heather Nauert told reporters on August 9 that the United States would define progress in relations with Turkey with Brunson's return to the United States.

Last week, the U.S.

Meanwhile, markets are deeply concerned over the direction of economic policy under Erdogan, with inflation at almost 16% but the central bank reluctant to raise rates in response.

World stock markets fell Friday, particularly in Europe, as investors anxious about the financial stability of Turkey, where the currency has nosedived.

Many Turkish lenders are already in talks to restructure billions of dollars of loans, a process that may end up forcing them to accept losses. Trump also threatened additional "large sanctions" against Turkey, a North Atlantic Treaty Organisation ally, for Brunson's detention.

Turkey later warned the United States that sanctions and pressure would only serve to harm ties between the two North Atlantic Treaty Organisation allies, adding Ankara would continue to retaliate as necessary against US tariffs.

To understand how all of these pieces fit together, we'll start with some basic facts about trade between the United States and Turkey.

Treasury and Finance Minister Berat Albayrak has vowed to execute Turkey's new economic model together with "all national and global stakeholders", while stressing that a "decisive" approach and the Central Bank's independence would be maintained. Inflation increased 16 percent in July, and Erdogan has insisted that interest rates not increase.

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