Turkey's partnership with United States in jeopardy, Erdogan warns

Devin Lawrence
August 11, 2018

Friday morning, President Trump tweeted about the situation with Turkey, announcing further tariffs and noting that relations between the USA and Turkey are "not good".

The numbers have been sliding ever since President Erdogan's election victory in June, with concerns among foreign investors about his control of monetary policy as well as the birth of Turkey's new presidential republic. At the beginning of August, the U.S. Treasury Department sanctioned Turkey's ministers of Justice and Interior because of Brunson's detainment. Sanctions and pressure would only serve to harm ties between the two North Atlantic Treaty Organisation allies, Hami Aksoy also said in a statement.

The announcement accelerated the sell-off of Turkey's lira currency, already battered by worries about President Tayyip Erdogan's influence over the central bank.

The Turkish lira has always been falling on worries about Erdogan's influence over monetary policy and worsening relations with the United States.

"Those who have dollars, euros or gold under their pillows should go and exchange them into [Turkish] lira. This is a national, domestic battle", he told a crowd in the northeastern city of Bayburt.

Despite mounting pressure to reassure investors, president Erdogan yesterday remained defiant, stating that Turkey would prevail in an "economic war" while calling on Turks not to panic or "bow in front of economic threats". In Europe, where exposure to Turkey is far higher, Germany's DAX fell by 1.7% and France's CAC by 1.2%. Trump said in an early morning post on Twitter.

USA stock markets also fell after his tweet.

The lira's plunge has featured remarkably little on Turkish television channels and newspapers - most of which after recent ownership changes are loyal to the government - with media focusing instead on recent flooding by the Black Sea.

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The currency has lost almost a third of its value this week.

Such a stabilisation project would have to involve not just a sharp increase in interest rates, but also a full comprehensive programme of reforms, and - what would probably be a very bitter pill - the shelving of many of Erdogan's expansive infrastructural and defence industry projects, 400 of which were unveiled only a few days ago. The lack of central-bank action to support the currency is also spooking investors and Erdogan's previous comment that interest rates are the "mother and father of all evil" hasn't helped. He claims higher rates lead to higher inflation - the opposite of what standard economic theory says.

The sanctions will freeze the USA assets of Turkey's minister of justice, Abdulhamit Gul, and its minister of interior, Suleyman Soylu. "It could serve as a template for further tariff actions against China if the renminbi depreciates further relative to the dollar, even if that depreciation were mainly a reflection of the relative strength of the USA and Chinese economies".

He appeared to blame foreigners for trying to hurt Turkey, saying: "This will be my people's response against those waging an economic war against us".

"If they have their dollar, we have the people, we have Allah, " he said.

But Turkey is not manipulating its currency; the lira is falling because the country is suffering from an economic crisis.

Albayrak, who formerly served as energy minister, on Friday announced what he has described as a "new economic model" for Turkey but he focused on macro-economic issues and steered well clear of tackling the currency crisis.

Without naming any country, Erdogan said that those - who stand against Turkey for the sake of small calculations - would pay the price.

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