Economic turmoil hits Turkey, US bank stocks react

11 August, 2018, 16:12 | Author: Brooke Harris
  • Berat Albayrak

On June 21, Turkey's retaliatory tariffs went into effect on 4 to 70 percent of more than $1 billion worth of US goods.

Both currencies added to losses after U.S. President Donald Trump said he had authorized a doubling of tariffs on steel and aluminum imports from Turkey.

"This innocent man of faith should be released immediately", Trump previously wrote on Twitter when it became clear Turkey would not release the evangelist, who was ordered to be held under house arrest.

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

US patience with Turkey is seen to have ended, experts said.

Turkey imposed $266.5 million in tariffs against the U.S. in June, targeting American imports of coal, paper, walnuts, almonds, tobacco, whiskey and machinery, amongst other items.

A widening rift with the United States, its main North Atlantic Treaty Organisation ally, and President Tayyip Erdogan's grip on monetary policy under a new powerful executive presidency have helped to drive the lira down by more than 40 percent this year, a particular vulnerability for Turkish banks as over a third of their lending is in foreign currencies.

"If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks", he said during an address to supporters.

Erdogan won re-election in June and has secured an empowered presidency, leaving him freer to confront the country's economic challenges.

Mr Trump intensified his spat with Turkey by imposing the higher tariffs, putting unprecedented economic pressure on a North Atlantic Treaty Organisation ally and deepening turmoil in Turkish financial markets. As the currency drops, Turkish companies and households with debt in foreign currencies see their debts expand. The lira fell further after Mr Trump's tweet.

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Coupled with an inflation rate of almost 16 per cent, that could cause severe damage to the local economy. The sanctions on two officials were announced Wednesday.

UBS chief economist for EMEA emerging markets Gyorgy Kovacs said a giant rate hike of 350-400 basis points would be "consistent with real rate levels that in the past helped to stabilise the currency" but warned a deal to normalise ties with the U.S. may also be needed.

High-level meetings in Washington between USA and Turkish officials over Brunson ended this week, apparently without a resolution.

Turkey accounted for 373 million euros of BBVA's its first half net attributable profit, 14 percent of the group total, suggesting that it may be the most vulnerable to the country's market turmoil.

The timing of Mr Trump's tweet coincided with an announcement by Turkey's Treasury and Finance Minister Berat Albayrak of the government's new economic policy which is aimed at restoring confidence in the lira.

The lira, which has lost more than 40 percent this year, hit a new record low after Trump took steps to punish Ankara in a wide-ranging dispute.

"He spoke today sounding very combative and defiant instead of possibly offering a bit of fig leaf to the US", said Franulovich. Albayrak is the Turkish President Recep Tayyip Erdogan's son-in-law.

Some economists were less impressed by the government's handling of the crisis. The U.S. responded by slapping sanctions on Turkey and threatening more.

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".

"A US-induced crisis in Turkey will create a new martyr in the region, with far-reaching consequences which American congressmen and President Trump do not foresee", Bulent Gultekin, a professor at the Wharton School of the University of Pennsylvania and the former Turkish Central Bank governor, told MEE.


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