After avoiding the abyss, nation faces new US threats
ANKARA: After stabilising its currency and staving off a full-blown crisis this week, Turkey faces the prospect of renewed turmoil with a looming court decision on the American detainee at the heart of a dispute with Washington.
US Treasury Secretary Steven Mnuchin urged President Recep Tayyip Erdogan’s government on Thursday to free American pastor Andrew Brunson or face more sanctions. An appeals court in the coastal city of Izmir is set to rule by Saturday on a bid by Pastor Brunson’s lawyer to release him.
While reassuring pledges by Treasury and Finance Minister Berat Albayrak on a global investor conference call on Thursday and a crackdown on betting against the currency have helped the lira bounce by around 6% against the dollar this week — after losing a fifth of its value the previous week — the prospect of renewed conflict with the US has markets on edge.
“It still looks like we’re headed to more conflict,” Kathy Jones, chief fixed-income strategist at Charles Schwab Inc. “Neither side seems to be backing down yet.”
The market convulsions were again on show yesterday, as the lira slid 4.2% to 6.0896 per the dollar at 12.32pm (4.32pm Thailand time) in Istanbul, bringing its losses for the year to more than 37%.
Market turmoil was triggered when the US first sanctioned two ministers in Erdogan’s government over the continued detention of Pastor Brunson for what Turkey says was his role in a failed 2016 coup. The currency this week pared losses on the back of a stealth interest rate hike by the central bank and a limit by banking regulators on swaps that cut down on short selling the lira.
In its latest steps to shield the economy, Mr Albayrak’s ministry yesterday said in a statement that non-financial companies’ credit worthiness wouldn’t be affected by failure to service debt amid the recent rout.
Credit lines to firms would remain open, and pricing and repayment periods would be kept flexible, it said.
Mr Erdogan, who has rejected concerns that Turkey might need a rescue package from the International Monetary Fund, also expanded his diplomatic outreach this week, speaking to leaders of Germany and France and striking a deal with Qatari emir which will see an inflow of US$15 billion (498 billion baht) into the economy.
With Turkish companies weighed down by increasingly costly foreigncurrency debt and confronting doubledigit inflation, another flash point is a scheduled review by S&P Global Ratings on Turkey’s credit worthiness. The rating agency already holds Turkey at BB-, three levels below investment grade.
“The market turmoil in Turkey is the latest in a series of fragilities amplified by gradually tightening financial conditions this year,” according to Wei Li, BlackRock Inc’s head of iShares EMEA strategy in London.
“Investors should prepare for further bouts of volatility ahead.”