Turkey’s currency nosedives on economic concerns, U.S. dispute

Irving Hamilton
August 10, 2018

President Donald Trump said Friday he has green-lit a doubling of steel and aluminum tariffs on Turkey and warned that relations between the U.S. and Turkey "are not good at this time", a move that comes amid USA efforts to increase pressure on Ankara to secure the release of an American pastor. Trump wrote in another Twitter post when it became clear that Turkey would not release him.

Aluminium will now be 20 per cent and Steel 50 per cent.

Shares of European lenders also dropped, which according to the Reuters news agency was due to concerns about their Turkey exposure.

White House spokeswoman Lindsay Walters later clarified, "As he stated, the president has authorized the preparation of documents to raise tariffs on imports of steel and aluminum from Turkey".

In June, the United States imposed tariffs of 25 percent on steel imports and 10 percent on aluminum imports from Turkey.

President Tayyip Erdogan of Turkey has told his citizens to sell their savings held in euros and dollars and buy lira in order to prop up the lira, citing an "economic war" after the country's currency has plummeted.

The Turkish lira plunged 7% on Friday in its biggest one day fall since its 2001 financial crisis, sending tremors through emerging markets and dragging down many peers to multi-week lows. High level meetings in Washington between USA and Turkish officials ended this week without an apparent resolution.

"In this process, we will finely work every single detail as a wide spectrum including all national and worldwide stakeholders", he said in the first part of his speech, referring to Turkey's Medium-Term Economic Plan (OVP), which will soon be renamed.

Some of the lending was financed by Turkish banks who borrowed dollars or euro from other banks in the short-term interbank market and lent them to their customers.

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The Turkish lira hit an all-time low against the dollar on Friday, and there are growing concerns that the country's economic troubles could spread to the eurozone. Markets are deeply concerned over the direction of economic policy in Turkey where inflation has hit almost 16 percent while the central bank remains reluctant to raise rates in response.

In modern economies, central banks are meant to be independent of governments to make sure they set policies that are best for the economy, not politicians.

Erdogan had in comments late Thursday raised eyebrows by appearing to play down the magnitude of the crisis, saying: "If they have dollars, we have our people, we have our right and we have Allah!" he said.

Albayrak, who formerly served as energy minister, is on Friday expected to announce what he has described as a "new economic model" for Turkey but markets remain skeptical.

But given the sizeable personal control Erdoğan commands over the running of the Turkish economy - after granting himself the right to appoint the central bank's governors and naming his son-in-law as finance minister - economists reckon the government will attempt to muddle through the country's current problems.

Coupled with an inflation rate of almost 16 percent, that could cause a lot of damage to the local economy.

On the energy front, crude prices dropped on growing concerns that global trade disputes will slow economic growth and demand for fuel, but losses were limited by U.S. sanctions against Iran which look set to tighten supply.

Turkey will end up as "an economic satrapy of China", as I predicted last November.

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