The Trump regime's economic sanctions and tariffs on Turkey this month has quickly gone from punishment over a detained US pastor to an economic wildfire in Ankara as the Turkish lira has collapsed, losing more than 40% of its value compared to the US dollar in just a few weeks. But the main problem is Erdogan himself, who is treating this as an opportunity to remake Turkey's economic sector in his image by letting it be demolished.
Turkey is set for another week of financial-market turmoil with its face-off with the U.S. showing no sign of abating.
While officials in Ankara, Istanbul and Washington have the means to stem the mayhem that sent the lira down 25 percent in the past month, the will to deploy them was absent through much of the weekend, with Recep Tayyip Erdogan maintaining his defiance toward the U.S. and financial-market orthodoxy in speeches Sunday.
Pressured by U.S. sanctions and a new constitutional order that concentrates power in Erdogan’s hands, Turkey’s central bank and finance ministry did little more than monitor the worst market beating since the rout that took out much of the country’s financial sector in 2001. The nation’s Banking Regulation and Supervision Agency did step in early Monday to limit the amount of foreign currency and lira swaps, and swap-like transactions, to 50 percent of banks’ legal shareholder equity.
Finance Minister Berat Albayrak sought to calm investors Sunday evening in a newspaper interview. He said the ministry has prepared an action plan that will be announced Monday, with the nation’s institutions ready to take the “necessary steps” to calm markets.
Turkey is “living very dangerously,” Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said in a Bloomberg Television interview. “If the central bank in Ankara was truly independent, I think that it’d be raising interest rates now and rapidly so.
Turkey’s lira extended its precipitous slide Monday, with the selloff spreading to other emerging market currencies. It weakened past 7.23 per dollar to a new record low in thin trading in Asia, before paring losses to 7.0060 at 11:09 a.m. in Singapore. The South African rand also fell to its weakest in more than two years, while the Mexican peso dropped almost 2 percent against the greenback.
While investors are pleading for dramatic central bank action to bolster the lira, Turkish officials fear that even a huge increase in borrowing costs could be quickly offset by another round of U.S. sanctions, according to two people familiar with the thinking of the country’s economic administration.
The bottom line in this line of thinking in Ankara: Until relations between the two NATO allies are restored, no policy lever is worth pulling.
As of Sunday, Erdogan showed no willingness to meet President Donald Trump’s condition for mending ties: releasing a U.S evangelical pastor, Andrew Brunson, who’s been imprisoned in Turkey for almost two years on charges of participating in a 2016 attempted coup.
Given Erdogan’s rhetoric — he called for resistance and vowed not to give in to threats — a solution requires either a gesture from the Trump administration allowing Erdogan to save face, or a humiliating reversal by the Turkish president. Neither looks likely.
Erdogan wants to allow as much damage as possible, to blame Trump for it, and to swoop in and claim even more power for himself. He's done it before when his "failed coup" vaulted him from strongman to dictator two years ago. But let's keep in mind that the real reason Trump and Erdogan hate each other is that Turkey is Michael Flynn's former employer, and Ankara is neck-deep in the Mueller probe.
If you think Trump is going to lift a finger to save the Erdogan regime, you're nuts. Erdogan is playing with thermite and nitroglycerine, and when it all blows up, a lot of people are going to get hurt.
Stay tuned.
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