Turkey's lira crisis: 'economic war' sees Erdoğan look east for new allies

Turkey’s President Recep Tayyip Erdogan is showing no signs of backing down in a standoff with the US that rattled markets. — Reuters pic

It had already fallen more than 40% in the past year.

"Asia should not see any contagion effect fundamentally due to the ongoing crisis in Turkey as the region does not have a meaningful exposure to the country", said DBS Group Research in a note, citing data from Bank for International Settlements that of the US$265 billion of exposure to Turkish counterparties reported globally as of March 2018, Asia banks except for Japan did not have any exposure.

In an interview with Hurriyet newspaper published online, Albayrak described the lira's weakness as "an attack", echoing President Tayyip Erdogan - who is his father-in-law - but he said Turkey's action plan was ready. Conservative evangelical Protestants are a key constituency for US President Donald Trump. There is no economic reason. "This a plot to force Turkey to surrender in every field from finance to politics, to make Turkey and its people to kneel down".

Erdogan exacerbated problems on Friday when he urged citizens to sell dollars and gold in exchange for lira.

"I am specifically addressing our manufacturers: Do not rush to the banks to buy dollars", he said.

Presidential Communications Director Fahrettin Altun described the rumors as "disinformation campaign" based on a statement by President Recep Tayyip Erdoğan, who had said on August 12 that "You must know that keeping this nation on its feet is not just our duty but also the duty of industrialists and merchants".

Turkey's lira meltdown is causing a global economic crisis on all four corners of the world - particularly in France and Spain where major lenders are at risk of losing substantial paybacks while President Erdogan's debt rises.

Asian currencies were also hit by the downdraft with India's rupee dropping to a new record, while the Indonesian rupiah slumped 0.8 percent. Inflation hit 15.9 percent annually in June.

Investors are anxious that Turkish companies that borrowed heavily to profit from a construction boom may struggle to repay loans in dollars and euros, since the weakened lira means there is now more to pay back.

Turkey's relations with United States and Germany have been strained by its decision to arrest several citizens from both countries.


In an apparent bid to circumvent the Trump administration and appeal directly to the American public, Turkish President Recep Tayyip Erdogan this weekend published an op-ed in the New York Times, titled, "How Turkey Sees the Crisis With the US" In it, he warned that the ongoing dispute between the North Atlantic Treaty Organisation allies could lead to the dissolution of ties and a shift eastwards by Ankara.

The dispute centres on Turkey's refusal to release American pastor Andrew Brunson.

Erdogan vowed also in Trabzon there would be no easing of the law in Brunson's case, said that the United States tried to "give us ultimatums and deadlines to free the priest".

What are officials doing about it?

Turkish President Recep Tayyip Erdogan said on Saturday that his country was now looking to form alternative economic alliances from "Iran, to Russian Federation, to China and some European countries", after the USA "upset and annoyed" its North Atlantic Treaty Organisation ally with sanctions that greatly exacerbated the lira's existing troubles.

The lira recovered to 6.61 following the Central Bank's announcement.

Erdogan has also repeatedly aired the unorthodox view that low interest rates can help bring down inflation.

Albayrak, who is Erdogan's son-in-law, didn't specify what the plan would involve. He also took higher interest rates off the table and said Turkey wouldn't accept an global bailout. Elsewhere, markets were seeing losses of about 0.5% to 0.8% as investors digested last week's 25% fall in the lira.

Over a third of Turkish banks' lending is in foreign currencies, according to Reuters.

Such sell-offs are not uncommon during the summer - there was one this time last year prompted by concerns over North Korea - but investors are, nonetheless, very alert to the fact that most stock markets in western countries are now in their tenth year of the current bull run that began in March 2009.

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