Trump throws Turkey under bus

It had been touted as a speech that would save Turkey’s beleaguered currency, the lira, from falling off a cliff, or at least soften the landing. But just as Turkey finance minister Berat Albayrak unveiled a new plan for the economy on August 10, US President Donald Trump tweeted that he would double tariffs on Turkish steel and aluminium products. The lira plummeted further. In the course of an hour, it reached a new low of 6.80/$, marking its worst daily performance in more than a decade. It recovered a little afterwards, but has lost about 40% of its value against the dollar since the start of 2018.

Trump’s decision came in the middle of an increasingly heated dispute between the two estranged Nato allies. Yet President Recep Tayyip Erdogan seems to be in no mood for concessions. He points to the collapse of the lira as part of a plot against Turkey. In a speech made before Trump’s tariff announcement, the Turkish strongman said his country was in the middle of an “economic war” against outside powers and asked his supporters to save the lira by cashing in their dollars and euros. “That would be the best response we can give to the West,” he said.

But the lira was under pressure long before the latest row with the US. Encouraged by their president, who has leaned on the central bank to keep lending rates low, Turkish companies have binged on cheap credit, much of it denominated in dollars. They have accumulated more than $220bn in debt. Inflation reached nearly 16% in July.

Albayrak, who is also the president’s son-in-law and whose appointment as finance minister in July has further unnerved investors, has been unable to rise to the challenge. As the lira set one record low after another, he waited for a week before presenting a programme that was largely devoid of specific reform proposals.

Meanwhile, the central bank has buried its head in the sand. It last raised interest rates on June 7. The lira has since lost about a third of its value.