Turkish lira plunges as Erdogan speaks, Trump tweets on tariffs
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Turkey’s lira hit record lows Friday as President Recep Tayip Erdogan urged Turks to sell their foreign currency and US President Donald Trump said he was doubling aluminum and steel tariffs “with respect to Turkey”.
The lira, which has lost a third of its value this year, plunged as low as 14 percent to the dollar Friday over worries about Erdogan’s influence over Turkey’s monetary policy and worsening relations with the US.
The currency crisis came as Erdogan called on Turks Friday to support the struggling the lira by exchanging any foreign money, saying Turkey faced "an economic war".
"If you have dollars, euros or gold under your pillow, go to banks to exchange them for Turkish lira. It is a national fight," said Erdogan.
"This will be the response to those who have declared an economic war," blaming Turkey's woes on what he described as an "interest-rate lobby" seeking to push the country to higher rates.
Investors hoping Erdogan's comments would give some indication that the government was prepared to support the lira were disappointed with the currency crashing further in value.
The Turkish leader was addressing supporters shortly before his son-in-law, Turkey’s Finance Minister Berat Albayrak, unveiled the country’s new economic plan.
Speaking at a presentation to outline the government's new economic model, Albayrak said the next steps of economic rebalancing would entail lowering the current account deficit and improving trust.
He also said there would be a strategic period where steps on reducing the current account deficit would be taken.
Even as the Turkish finance minister was unveiling his new plan, Trump entered the fray Friday with a tweet announcing that he had authorised higher tariffs on imports from Turkey, imposing a 20 percent duty on aluminium and 50 percent one on steel.
In an early morning Twitter post, Trump noted that the lira "slides rapidly downward against our very strong Dollar!" and added that, "Our relations with Turkey are not good at this time!"
I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!Donald J. Trump (@realDonaldTrump) August 10, 2018
Turkey calls to resolve tariff issue through ‘dialogue’
Responding to Trump’s tweet, Turkey’s trade ministry said the US tariff moves were against World Trade Organisation rules.
Nevertheless, Turkish Trade Minister Ruhsar Pekcan implored the US president to return to the negotiating table on tariffs, saying the trade rift between the NATO allies can and should be resolved through dialogue.
"Repeated efforts to communicate to the US administration that none of the stated criteria driving America's tariffs are applicable to Turkey have thus far proven fruitless," Pekcan said in a statement. "Nevertheless, we implore President Trump to return to the negotiating table - this can and should be resolved through dialogue and cooperation."
Concerns over exposure to Turkish lira
Waves from the crisis spread abroad, with investors selling off shares in European banks with large exposure to the Turkish economy.
Finance Minister Albayrak on Friday acknowledged that the central bank's independence was critical for the economy, promising stronger budget discipline and a priority on structural reforms.
The lira sell-off has deepened concern about exposure to Turkey, particularly whether over-indebted companies will be able to pay back loans taken out in euros and dollars after years of overseas borrowing to fund a construction boom under Erdogan.
Erdogan's characteristic defiance in the face of the crisis has further unnerved investors.
“Turkey is a deficit economy, it has no oil, no gas, not big savings. It needs to import, it needs to export goods, it needs short term money, foreign investments, technology and that is an inescapable reality,” explained Marc Pierini, from Carnegie Europe and a former EU ambassador to Turkey, in an interview with FRANCE 24. “In the face of this, what you have in the past couple of years, is a march towards autocracy. Now the president is the absolute ruler, you have no rule of law, no counterbalance power, no free press, no free judiciary and so on, and of course the markets internationally don’t like it.”
The currency crisis, Pierini noted, started a few years ago, but has exacerbated since the start of this year. “The fall of the Turkish lira started before, but now of course, with the recent developments, it has fallen even more. What you have is a situation where so far the Turkish president has convinced his people -- or at least half of his people -- that this is a war against Turkey, this is a conspiracy. It’s all fine, but it doesn't reflect reality. What you have is Turkey marching to the cliff.”
The lira, which has lost a third of its value this year, fell on his comments and was trading at around 6.05 to the dollar after he spoke, nearly 9 percent weaker on the day. "The dollar cannot block our path. Don't worry," Erdogan assured the crowd of supporters at the Friday prayers.
That is unlikely to mollify investors who are also worried by a growing dispute with the United States. The NATO allies are at odds over the detention in Turkey of US Evangelical pastor Andrew Brunson on terrorism charges.
(FRANCE 24 with AP and REUTERS)