World economic media highlight Turkish lira drop

The New York Times newspaper said ties between Turkey and the United States, members of ANTO, are about to collapse.  But the outsize effect reflected deepening concerns over Turkey’s economic management by President Recep Tayyip Erdogan, who was re-elected in June with near-authoritarian powers. It also increased the risk that the problems in Turkey, which borders Iran, Iraq and Syria, could destabilize economies well beyond the region.

Turkey’s economy is only the 17th largest in the world, but its problems are worsening as Mr. Trump’s trade war is rattling global commerce, damaging longtime alliances and threatening economic growth worldwide.

Turkey’s currency, the lira, which traded at 4.7 to the dollar a month ago, weakened to 6.4 to the dollar on Friday — the first time ever that it took more than 6 lira to buy a dollar. The lira has lost more than 30 percent of its value this month — roughly half of it this week.

 Seeming to sense vulnerability, Mr. Trump piled on pressure and announced additional economic sanctions — doubling tariffs on imported Turkish steel to 50 percent and on aluminum to 20 percent — after having already penalized two Turkish government ministers last week.

The move effectively priced Turkish steel out of the American market, which accounts for 13 percent of Turkey’s steel exports.

Meanwhile, the Financial Times has said the Turkish lira is in free fall. It was already down more than 35 per cent on the year when it plummeted to record lows on Friday, surpassing the Argentine peso as the world’s worst performing currency in 2018.

The further the lira falls the greater the possibility of a balance of payments crisis, corporate defaults on foreign debt and likely meltdown for the banking sector.

It was within President Recep Tayyip Erdogan’s gift to put the brakes on. So far his defiantly unorthodox reaction, blaming the crisis on economic war, calling on citizens to trade gold and dollars for lira.

President Donald Trump has poured salt on these otherwise self-inflicted wounds. The US will raise tariffs on Turkish steel to 50 per cent and aluminium to 20 per cent, he tweeted as Ankara’s finance minister spoke. That intervention not only accelerated the lira’s decline — the greatest in a day in 20 years. It also reinforced Mr Erdogan’s claim to be the victim of external plots.

Bloomberg news portal said the lira fell 7% against the dollar to 5.9655 after hitting an all-time low earlier in the session. It has fallen by over 35% this year. The fall has come as Turkish President Recep Tayyip Erdogan has moved to take greater control of monetary policy.

The recent plunge comes after a Turkish delegation in Washington failed to stop the US from imposing sanctions against two senior ministers, Bloomberg reported.

Erdogan is showing no signs of backing down in a standoff with the U.S. that rattled markets. As investors worry about Turkey sliding toward a full-blown financial crisis, the big question now is how far the pain may spread the American newspaper added.

U.S. Sanctions

While the trigger for the stunning debacle was new U.S. sanctions on Turkey, many investors say the $900 billion economy was already headed toward a cliff. Years of a growth-at-all-costs policy bias have left its companies saddled with hundreds of billions of dollars in foreign debt, runaway inflation and one of the world’s largest current-account deficits.