China’s financial help to Turkey will not turn around the troubled lira

Cornelia Mascio
Agosto 14, 2018

Mevlut Cavusolgu, Turkey's foreign minister, warned the U.S. it would not achieve its aims by exerting pressure and imposing sanctions.

Turkey's financial crisis has raised the risk of contagion throughout emerging economies, dragging down South Africa's rand, Argentina and Mexico's pesos and the Russian rouble.

The country's economic trouble has been heightened by a dispute with the US that has centered on the continued detention of an American pastor who is on trial for espionage and terror-related charges. Also, a diplomatic spat with the U.S. is resulting in sharply higher tariffs on Turkish steel and aluminum. "We have not made concessions on justice so far, and we will never make any".

"MASAK started an investigation into people and institutions that spread fake news, such as those claiming that "the state will intervene to convert foreign exchange in accounts into Turkish lira" and "it will fix dollar exchange rate" by ditching floating rate policy, which is a main pillar of the free market", Treasure and Finance Ministry Press Undersecretary Ali Berber said in a tweet on August 13.

But Beijing would likely factor in the longer-term benefit of building an alliance with a country that is also in conflict with the United States, potentially giving Beijing more global political leverage in future. There is no economic reason. "This is called carrying out an operation against Turkey", he said.

On Wall Street, trading screens glowed red as stock market losses that started in Asia spread across North America and Europe.

The Turkish currency's slide comes amid rising tensions between the United States and President Recep Tayyip Erdogan over trade.

And in 1998, the devaluation of the Russian ruble threatened to spread instability to the heart of the developed world, when it contributed to the collapse of the large U.S. hedge fund Long Term Capital Management, sending financial markets in the United States into a panic.

"Washington must give up the misguided notion that our relationship can be asymmetrical and come to terms with the fact that Turkey has alternatives", wrote the Turkish strongman in the New York Times on Saturday.

"You (the United States) are trying to sacrifice our strategic relations on the sole basis of a priest", said Erdogan Sunday, warning furthermore that Turkey will eventually say "farewell" to its American ally.

The currency recovered somewhat after the central bank's statement, as well as a pledge by Turkey's finance minister to lay out an action plan to stem the lira's losses.

But there are fears that Mr Erdogan, who is famously averse to interest rate rises, may be pressuring the central bank not to act.

Mr Albayrak said the country would "act in a speedy manner" and its plan included help for the banks and small and medium-sized businesses most affected by the dramatic volatility in the lira.

He has dismissed any suggestions that Turkey might intervene in dollar-denominated bank accounts, saying any seizure or conversion of those deposits into lira was out of the question.

Erdogan rejected speculation that Turkey would seek a rescue package from the International Monetary Found.

The lira resumed its nosedive after US President Donald Trump said he was doubling tariffs on imports of Turkish aluminium to 20 per cent and steel to 50 per cent.

The Turkish president's standoff with Trump has fuelled concerns of a foreign policy shift that would result in Turkey leaving North Atlantic Treaty Organisation, forging stronger political links with Russia, China and Iran, and allowing the three million Syrian refugees living in Turkey to leave for the EU.

Turkey's economic crisis poses a threat to European banks with business in the country.

Turkey's Foreign Minister Mevlut Cavusoglu speaks at the 10th Ambassadors' Conference in the capital Ankara.

Turkey and the United States have disagreed on a number of issues in recent years, including the war in Syria and a US refusal to extradite Fethullah Gulen, a cleric Erdogan claims is behind the botched attempt to unseat him.

So far, however, Turkey has not sparked a global rout in emerging markets.

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