In­vestors shrug off tit-for-tat, mar­kets fully re­cover to pre-spat lev­els

Daily Sabah (Turkey) - - Money - Taha Meli Ar­vas

Fi­nan­cial risks as­so­ci­ated with a tit-for­tat diplo­matic dis­pute be­tween Turkey and the United States ap­pear to have been al­most fully re­solved by late Wednesday. The U.S. Em­bassy in Ankara held a press briefing Wednesday af­ter­noon in which it used lan­guage that sig­naled a ma­jor de-es­ca­la­tion of dif­fer­ences be­tween both coun­tries. The Turk­ish lira traded at 3.61 to the dol­lar at the close of trad­ing on Fri­day. On Sun­day, the U.S. em­bassy is­sued a ban on pro­cess­ing of all non-im­mi­grant visas at its em­bassy and all con­sulates. The ex­change rate spiked at the open of trad­ing late Sun­day fol­low­ing the an­nounce­ment to nearly 3.8 li­ras. As of this writ­ing, the lira traded at 3.65, or 1 per­cent off its Fri­day close.

The ini­tial dis­pute stems from the ar­rest of a U.S. Con­sulate em­ployee by Turk­ish po­lice. Turk­ish au­thor­i­ties al­lege the in­di­vid­ual ar­rested is tied to its probe of the failed July 15 coup at­tempt. The in­di­vid­ual in ques­tion has no diplo­matic im­mu­nity and is a Turk­ish cit­i­zen. There­fore this in­di­vid­ual is, ac­cord­ing to Turk­ish gov­ern­ment of­fi­cials, not pro­tected by any diplo­matic agree­ment be­tween both coun­tries and can be tried in Turk­ish courts for al­leged crimes.

Turk­ish pros­e­cu­tors al­lege they have phone records that prove the con­sulate em­ployee was in con­stant con­tact with many in­dicted coup at­tempt-re­lated ter­ror­ists and also had con­tact with the ring-leader. U.S. of­fi­cials al­lege the in­di­vid­ual ar­rested was in con­tact with said of­fi­cials as part of his du­ties at the con­sulate. Em­bassy of­fi­cials also claim they have not re­ceived any of­fi­cial cor­re­spon­dence re­gard­ing their em­ployee from Turk­ish of­fi­cials.

“It is quite un­usual for a gov­ern­ment to de­tain and ar­rest em­ploy­ees of a diplo­matic mis­sion with­out hold­ing any of­fi­cial dis­cus­sion,” U.S. Am­bas­sador John Bass said.

The an­nounce­ment Sun­day was met with a re­sponse by the Turk­ish gov­ern­ment, sus­pend­ing all visa pro­cess­ing for U.S. cit­i­zens, mir­ror­ing the U.S. Em­bassy’s ac­tions. Fol­low­ing the U.S. Em­bassy’s an­nounce­ment, no word from U.S. State Depart­ment of­fi­cials in­form­ing their Turk­ish coun­ter­parts of the visa sus­pen­sion had been re­ceived un­til late Tues­day.

While it was Colum­bus Day in the United States and gov­ern­ment of­fices were closed, Turk­ish of­fi­cials were left guess­ing if this move was one made uni­lat­er­ally by the U.S. am­bas­sador in Ankara or by Washington. Pres­i­dent Re­cep Tayyip Er­doğan ques­tioned the move while on a state visit to Ser­bia.

Late Tues­day, U.S. of­fi­cials re­sponded that the move was made in co­or­di­na­tion with the White House and the U.S. State Depart­ment. By Wednesday af­ter­noon the U.S. Em­bassy in Ankara voiced an in­ter­est in de-es­ca­la­tion and lift­ing the tem­po­rary visa ap­pli­ca­tion ban at its mis­sions in Turkey while reit­er­at­ing Turk­ish cit­i­zens could still apply out­side of Turkey.

Mar­kets ap­pear to have shrugged off the im­pli­ca­tions of this lat­est in­stall­ment of the tit-for­tat be­tween the two coun­tries. Turkey is most con­cerned with U.S. sup­port for the Demo­cratic Union Party (PYD), a group Turkey says is an off­shoot of the PKK, which is a ter­ror­ist group that is of­fi­cially rec­og­nized by the U.S. and the Euro­pean Union.

Turkey be­lieves the endgame for the U.S. is the es­tab­lish­ment of a sep­a­ratist Kur­dish state along the south­ern bor­der of Turkey. The U.S. de­nies such ac­cu­sa­tions.

Mar­kets be­lieve that both sides have re­al­ized mu­tual co­op­er­a­tion is far more im­por­tant than the re­cent dis­agree­ments. The U.S. em­bassy seems to be par­tic­u­larly dis­pleased with leaks from Turk­ish pros­e­cu­tors of phone records of the U.S. con­sular staffer which ap­pear to show con­stant com­mu­ni­ca­tion with law en­force­ment of­fi­cials cur­rently in­dicted for ter­ror re­lated ac­tiv­i­ties.

Turk­ish of­fi­cials re­sponded that the U.S. pro­vided no such cour­tesy when ar­rest­ing a Turk­ish gov­ern­ment worker for of­fi­cial du­ties while work­ing at a gov­ern­ment bank, Halk­bank.

The U.S. am­bas­sador, in a video re­leased fol­low­ing the visa sus­pen­sion, ques­tioned whether or not some Turk­ish of­fi­cials wanted pur­posely to strain re­la­tions be­tween the two coun­tries. Sim­i­lar com­ments were made by Turk­ish of­fi­cials re­gard­ing U.S. of­fi­cials.

With Turk­ish credit de­fault swaps cur­rently trad­ing cheaper by nearly two per­cent and the Turk­ish bench­mark equity in­dex trad­ing higher than its Fri­day close, this mini-cri­sis ap­pears to be near­ing a mu­tu­ally ben­e­fi­cial res­o­lu­tion. The BIST100 traded at 104,449 late Wednesday while credit de­fault swaps traded at 1.7843. The bounce back of fi­nan­cial mar­kets in­di­cates mar­kets be­lieve visa pro­cess­ing on both sides will re­sume in the near fu­ture.

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