Turkey on the Economic Brink, Explained in a Dozen Charts

Kenny Grant
August 11, 2018

It came as a Turkish delegation returned from the United States, reporting no progress on negotiations involving a US pastor imprisoned in Turkey.

The lira fell as much as 18 percent against the dollar in its worst day since Turkey's financial crisis of 2001.

The turmoil in Turkey raised fears over what it means for the eurozone, sparking a sell-off in bank stocks and other assets in the region.

In June, the U.S. Senate passed a bill prohibiting Turkey from buying F-35 fighter jets because of Brunson's imprisonment and Turkey's purchase of Russia's S-400 air defense system.

Friday saw the lira's value falling over 15 percent, bringing the decline to over 40 percent since the beginning of the year.

President Tayyip Erdogan told Turks to swap gold and dollars into lira as the currency tumbled after President Donald Trump doubled USA tariffs on metals imports from Turkey. The lira slid to a fresh record low against the USA dollar.

The US on August 1 imposed financial sanctions on its North Atlantic Treaty Organisation ally, blocking Turkey's ministers of justice and interior from doing business with Americans.

The dollar rose as exposure to Turkey could impact European banks and spark a domino effect throughout Europe as people begin to pull out of those banks and into the USA, said Gregan Anderson, macroeconomic strategist at brokerage Bulltick LLC. Trump wrote. "Aluminum will now be 20% and Steel 50%".

"If they have their dollar, we have the people, we have Allah", he said, as the lira continued to fall.

Turkey remains at loggerheads with the U.S. in one of the worst spats between two North Atlantic Treaty Organisation allies in years over the detention of American pastor Andrew Brunson and a host of other issues. A delegation of Turkish officials held talks with their counterparts in Washington this week but there is no sign of a breakthrough.

The diplomatic rift between the countries has made the Turkish lira set multiple record lows in the past week.

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His characteristic defiance has further unnerved investors.

Last week, Erdogan called on Turks to convert their foreign currency and gold into Turkish lira to help the currency. "Don't worry", Erdogan told a crowd in the northeastern city of Bayburt.

"Some countries have engaged in behavior that protects coup plotters and knows no laws or justice", he said. "Relations with countries who behave like this have reached a point beyond salvaging".

The two North Atlantic Treaty Organisation allies have been at odds since the defeated coup, which Ankara accused US -based Fetullah Gulen and his FETO of masterminding. Gulen has denied the allegation. He has denied the charges.

The lira's relentless depreciation drives up the cost of imported goods from fuel to food for ordinary Turks.

Some economists were less impressed by the government's handling of the crisis.

"First of all, confidence needs to be regained". But now, the relationship appears to have gone sideways. Hard currency debt issued by Turkish banks suffered similar falls. It is unclear how that would justify higher tariffs on Turkey but not other countries.

Treasury and Finance Minister Berat Albayrak - who is Erdogan's son-in-law - was scheduled later on Friday to outline a 'new economic model'.

This did nothing to revive the lira.

Such factors could lead regulators to ask a bank like UniCredit - which is exposed to both Turkey and Russian Federation - to set aside more capital against those risks, Credit Suisse Group AG analysts led by Carlo Tommaselli said in a note. "Albayrak's plan was uninspiring at best".

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