Turkey: Currency, Tariffs and a Pastor

Turkish lira has dropped by over 40% this year. Is this a fallout from debt-fuelled growth, tariffs by Trump, or the arrest of an American pastor?

Turkey, a NATO member, had tariffs on steel and aluminium raised to 50% and 20%, respectively as a response to inconclusive talks last week. The U.S. is the biggest destination for Turkish steel exports – 11% of export volume.

The Turkish economy grew by 7% in 2017 supported by borrowings in foreign currencies by Turkish companies. Bulk of the revenue stream of these companies is in the local currency, the Turkish lira, while debt obligations remain in foreign currencies. A crisis waiting to happen!

Five European banks have significant exposure in Turkey. Europe is nervous because it depends on Turkey to restrain the flow of migrants from conflict zones. More than 4 million displaced people live in Turkey. Any significant flow of migrants will raise further opposition in Europe.

Then there is the American pastor put on trial for espionage and terror-related charges for a failed coup attempt in 2016. That’s fuel for the right-wing Evangelicals in the U.S. And Trump satisfied them with sanctions. But is the American pastor the real issue?

Turkey plans to buy Russian S-400 Triumf missile defense system for USD2.5 billion. Moscow claims it is effective against U.S. F-35 stealth fighter jets, a product of Lockheed Martin. U.S. and NATO officials want to prevent the Russian system from accumulating information on the sixty-four F-35s to be delivered to Europe (Norway, Britain, Italy and Netherlands) by end 2018 and 2019. U.S. lawmakers are seeking to block any transfer of the F-35 jets to Turkey.

Then there is the Russian built, nuclear plant (USD20 billion) under construction near the Mediterranean coast at Akkuyu. Putin also had talks with Iran and Turkey on the future of Syria.

What about other countries? India is moving forward with its purchase of the Russian S-400 Triumf air and missile defense system for USD5.5 billion. China is another buyer of the Russian system.

So now the U.S. is arrayed against Russia, China, Iran, India, Turkey, Cuba, Venezuela, Canada, Mexico, European Union and North Korea. What a combination – from communists and Islamic republics to free democracies and NATO members!

References: 

1.      Why Turkey’s currency is plunging and what it means

By David McHugh and Suzan Fraser, August 13, 2018

2.      Russia Sells Turkey Missiles It Claims Can Take Out F-35s

Kayhan Ozer, The Associated Press, April 3, 2018

3.      India to US: Sanctions won’t stop Russian air-defense system purchase

By Daniel Cebul, June 7, 2018