A financial shockwave on Friday ripped through Turkey, when its currency nose-dived on concerns about its economic policies and a dispute with the US, which US President Donald Trump stoked further by promising to double tariffs on the NATO ally.
Trump tweeted that he had authorized the doubling of steel and aluminum tariffs “with respect to Turkey.”
Trump said the tariffs on aluminum imports would be increased to 20 percent and those on steel to 50 percent as the Turkish lira “slides rapidly downward against our very strong Dollar!”
“Our relations with Turkey are not good at this time!” he wrote.
The US is the biggest destination for Turkish steel exports with 11 percent of the Turkish export volume. The lira fell further after Trump’s tweet.
The lira tumbled 14 percent in one day, to 6.51 per US dollar, a massive move for a currency that would make the Turkish poorer and further erode international investors’ confidence in the country.
The currency’s drop — 41 percent so far this year — is a gauge of fear over a country coming to terms with years of high debt, international concern over Turkish President Recep Tayyip Erdogan’s push to amass power and a souring in relations with allies such as the US.
In what appears to be a diplomatic riposte, Turkey later said Erdogan had held a telephone call with Russian President Vladimir Putin to discuss economic ties.
It did not disclose details, but suggests that Turkey might gravitate further away from its NATO allies toward cooperation with Russia, whose relations with the West are at their lowest since the Cold War.
Turkey’s woes have been aggravated by investor worries about the economic policies of Erdogan, who has been putting pressure on the central bank to not raise interest rates to keep fueling economic growth.
He says higher rates lead to higher inflation — the opposite to standard economic theory.
Independent analysts say that the central bank should instead raise rates to tame inflation of nearly 16 percent and support the currency.
Erdogan appealed for calm and called on people to change foreign money into lira.
“Change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks,” he said. “This is a domestic and national struggle.”
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.”
Erdogan’s son-in-law, Turkish Minister of Finance Berat Albayrak, also tried to ease investor concerns during a conference, saying that the government would safeguard the independence of the central bank.
“One of our principles will be ensuring the full independence of monetary policy,” Abayrak said as he outlined his ministry’s “new economic model.”
Turkey’s woes also shook world markets, pushing down stock indexes. On Wall Street, the S&P 500 on Friday slid 20.30 points, or 0.71 percent, to 2,833.28, its worst loss in a month.
The euro sagged to a 13-month low against the US dollar on concerns that European banks operating in Turkey could suffer losses.
Yet, analysts say that while there might be losses at some banks, Turkey’s economic problems do not pose a big threat to Europe or other big economies such as the US.
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