Turkey's floundering economy exacerbated by Trump tariffs

Richard Deviccaro Joseph Dente

The Turkish lira TRYTOM=D3 has always been falling on worries about Erdogan's influence over monetary policy and worsening relations with the United States.

"Those who can't compete with us on the ground have brought online fictional currency plots that have nothing to do with the realities of our country, production and real economy", Erdogan told a provincial meeting of his AK Party in the town of Rize on Saturday, as quoted by Reuters.

Trump last month threatened to slap "large sanctions" on Turkey if it did not release American pastor Andrew Brunson, who faces charges of espionage for allegedly supporting a failed coup attempt in 2016. The president - instead of reassuring the markets, whose collapsing confidence is one of the main drivers behind the lira's unprecedented depreciation - slammed Western countries and accused them of waging economic warfare on Turkey.

The new duties on Turkey are double the level that Trump imposed in March on steel and aluminium imports from a range of countries.

Looking at early signs of stress in the banks' dollar bond yields, he concluded: "One possibility is that investors have become concerned that U.S. sanctions could expand to include the banking sector, adding a premium to the yield on Turkish banks' bonds".

"President Erdogan's strengthened powers under the new presidential system have made it increasingly uncertain whether policymakers will be able to act to stabilise the economy", said William Jackson, chief emerging markets economist at Capital Economics in London.

"They say we will not give this or that". Mr. Trump said on Twitter.

On Friday the currency dropped as much as 18 percent at onepoint, the biggest one-day fall since a 2001 financial crisis inTurkey.

"I am once again calling on those in America: it is a pity that you choose a pastor over your strategic partner in North Atlantic Treaty Organisation", he said.

Erdogan on Friday held telephone talks with Russian President Vladimir Putin, discussing economic and trade issues as well as the Syria crisis.

On Thursday, Mr Erdogan said: "If they have their dollar, we have the people, we have Allah".

BBVA, owner of nearly 50 per cent of Istanbul-based Turkiye Garanti Bankasi AS, fell more than 5 per cent. Garanti and its local peers face a wave of corporate defaults and loan restructurings as the lira's collapse makes it harder for Turkish companies to repay the dollars they have borrowed in recent years.

Turkey has detained Mr Brunson for almost two years, accusing him of links to the outlawed Kurdistan Workers Party and the Gulenist movement, which Turkey blames for a failed coup in 2016.

"The US runs the risk of losing Turkey as a whole", he wrote.

The latest escalation came as Turkey's Economy Minister Berat Albayrak, who is Erdogan's son-in-law and a trusted lieutenant, unveiled what was touted as a new economic plan, pledging Central Bank independence, tighter budget discipline and sustainable and healthy growth.

He also said Turkey had alternatives, "from Iran, to Russian Federation, to China and some European countries".

In an opinion piece in the New York Times Friday, Erdogan wrote "failure to reverse this trend of unilateralism and disrespect will require us to start looking for new friends and allies".

Turkey remains at loggerheads with the United States in one of the worst spats in years over the almost two-year detention of American pastor Andrew Brunson and a host of other issues.

"The US and Turkey are breaking up".

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