The Turkish lira crash is threatening to turn into a debt and liquidity crisis with no end in sight. Instead of acting, the Turkish leadership has warned of an “economic war.”
Turkey is in the throes of a full-blown currency crisis, with little sign that the government has a plan to deal with one of the worst emerging market currency meltdowns in recent history.
The crisis threatens to throw the world’s 18th-largest economy into a downward spiral of bankruptcy and trigger contagion in emerging markets and Europe.
The Turkish lira fell as much as 22 percent Friday, before paring losses back to 17 percent, extending a rout in the currency from earlier this week. It stood at 6.47 to the US dollar at 1900 UTC. The lira has lost nearly 40 percent of its value since the start of the year and nearly 30 percent since President.
The currency carnage was pushed along on Friday by US President Donald Trump’s administration, which announced the United States would increase tariffs on Turkish steel and aluminum imports.
The tariffs themselves are minor and impact around $1 billion (€875 million) in trade, but they weighed on market confidence in the vulnerable Turkish economy.
“Their currency, the Turkish lira, slides rapidly downward against our very strong dollar,” Trump wrote on Twitter. “Our relations with Turkey are not good at this time.”
In an op-ed published in The New York Times, Erdogan said, “The United States has repeatedly and consistently failed to understand and respect the Turkish people’s concerns,” and added that “unless the United States starts respecting Turkey’s sovereignty and proves that it understands the dangers that our nation faces, our partnership could be in jeopardy.”
The continued imprisonment of US pastor Andrew Brunson has weighed heavily on relations between the United States and Turkey, leading to a series of escalations. Ties between the two NATO allies have also nosedived over American support for Syrian Kurdish forces, Ankara’s plans to buy a Russian missile system and Turkey’s demand that Washington extradite US-based Islamic cleric Fethullah Gulen, whom Erdogan blames for the failed July 2016 coup attempt. There is also an impending showdown in November over US sanctions on Iran, a major oil and gas supplier to Turkey.
More than US-Turkish tensions
While souring relations between the Washington and Ankara have added to Turkey’s economic woes, they are only a proximate cause of the market mayhem.
Observers have seen a vulnerable economy for months, something that has been exacerbated by political developments and Erdogan’s government.
Umit Akcay, a professor of economics at the Berlin School of Economics and Law, wrote on Twitter: “The warnings we have issued for months are unfortunately happening. Turkey is experiencing a currency crisis. We are entering a very difficult period. The government is responsible.”