Economy

As US and Turkey break up, experts warn of risky ramifications

As US and Turkey break up, experts warn of risky ramifications

The Financial Times added to concerns with a report that the European Central Bank was anxious about possible losses at eurozone banks operating in Turkey. The lira slid to a fresh record low against the USA dollar.

Trump commented on the issue as the Turkish lira has fallen 36 percent in 2018, and the country faces increasing debt without foreign investment.

U.S. President Donald Trump said he's authorized doubling some metals tariffs on Turkey, citing poor relations with the North Atlantic Treaty Organisation ally amid an escalating conflict over its detention of an American pastor. "Aluminum will now be 20 percent and Steel 50 percent", he said in a Twitter post.

A favourable exchange rate though can't have harmed the situation: on Friday, the USA dollar would buy nearly six Turkish lira; at the end of January, it would have got you less than four. Some 4 million displaced people, most them from Syria, are now living in Turkey.

It fell to a record low this morning, and has now dropped 18 per cent today to 6.5 lira to the dollar, compared with 5.5 lira last night, as a deepening monetary crisis and diplomatic relations with the U.S. deteriorated.

The Turkish lira hit a record low on August 10 after President Donald Trump authorized the doubling of tariffs on imports of Turkey's steel and aluminum. The plunge in the value of the currency coupled with an inflation rate of almost 16% could cause a lot of damage to Turkey's economy.

He railed against "those waging economic war" against Turkey. With the Russian ruble also falling sharply on the threat of more USA sanctions, the two biggest banking markets in eastern Europe are in turmoil. The U.S. was Turkey's biggest export market for steel a year ago, though exports have fallen since.

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There are now fears the weakening lira will see Turkish companies that borrowed heavily in the country's construction boom struggle to repay loans in dollars and euros. The lira fell further after Mr Trump's tweet. "Turkey has been trending towards authoritarianism & becoming more anti-American".

Turkey remains at loggerheads with the United States in one of the worst spats between the two North Atlantic Treaty Organisation allies in years over the detention for the last two years of American pastor Andrew Brunson and a host of other issues.

The United States is the biggest destination for Turkish steel exports with 11 per cent of the Turkish export volume.

Friday saw the lira's value falling over 15 percent, bringing the decline to over 40 percent since the beginning of the year.

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.

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

An analyst at Berenberg bank in London is downplaying the risks to Europe's economy from Turkey's currency turmoil, saying the impact on trade would be small. But experts argue that the central bank should instead raise interest rates to ease inflation and to support the currency. A delegation of Turkish officials held talks with their counterparts in Washington this week but there was no sign of a breakthrough.


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