Ankara is looking for support from new friends as the lira recovers from plunging to its lowest value against the dollar, amid a spat with the US over the detention of a pastor charged with terror-related offences.
The slide of the Turkish lira against the US dollar, which began this year over a number of issues, accelerated dramatically on Friday, August 10.
It followed a long spat between Ankara and its NATO ally Washington over the detention of American Evangelical Pastor Andrew Brunson in Turkey escalated last week, worsening already tense relations between the two NATO allies and taking the value of the Turkish lira on a rollercoaster ride.
Brunson has been detained in Turkey and remains under house arrest, accused of serious crimes, including involvement with terrorist groups including the PKK and Fetullah Terrorist Organisation (FETO).
The PKK has been waging an armed campaign against the Turkish state since 1984, which has claimed more than 40,000 lives while FETO is the group behind the July 15, 2016 coup attempt in the country, which claimed more than 250 lives and wounded more than 2,000 others.
The exchange rate saw a record low value of 7.24 Turkish liras to the US dollar on August 13 in the Asian Pacific markets from 4.98 at the beginning of month and then bounced back to 5.72 on August 16 before hovering back to around 6.
Turkish officials have long stressed that the fluctuations do not reflect the true state of Turkey's economy, but are due to manipulations from outside.
Turkish President Recep Tayyip Erdogan has called the sudden fluctuation an “economic warfare.”
On the surface, the sudden deterioration of relations appears to be over the detention of the US pastor, but there have been many other underlying issues contributing to the friction in the relationship including Turkey’s purchase of S-400 missile defence system from Russia and Ankara’s request of Fetullah Gulen, a self-exiled Turkish cleric who was behind the deadly failed coup in Turkey three years ago and the US support to the PKK terror group's Syrian affiliate, the YPG.
Addressing a press conference on August 10, Turkey’s newly appointed Finance Minister Berat Albayrak announced the new economic plan.
Amid what he would later describe as a “currency crisis,” Albayrak promised to fight inflation, budgetary discipline and in a bid to ease investor concerns, he said the government will safeguard the independence of the central bank.
“The minister didn't refer to the new programme with numbers – he wanted to state the general principles, and he wanted to emphasise merits of the model. However the ministry press communique from the previous day had the numbers,” Murat Ferman, a management professor at Isik University, told TRT World.
The plunge worsened as US President Donald Trump announced doubling of metal tariffs on Turkey, during Turkish Finance and Treasury Minister Berat Albayrak’s press conference where he revealed the new set of economic steps that are expected to curb the country's high inflation rate and ease the markets.
Experts commented on Trump’s trade policy, saying that imposition of import tariffs on Turkish goods had strengthened the greenback in contrast to Trump’s earlier claims of desiring a weaker US dollar in a bid to help US exporters.
As Asian and Pacific markets opened on Monday, August 13 following the eventful weekend, the Turkish lira hit a record low 7.24 to the dollar.
For Emre Alkin, vice president of Altinbas University, the sudden decline came as result of several symptoms.
“As we are an emerging country, we’re lacking savings; we need foreign debt. When we have a lot of foreign debt, it creates a vulnerability. And when ... a problem occurs, this vulnerability rapidly reflects on foreign exchange prices, which means the depreciation of the lira and rise of the dollar,” Alkin, vice president of Altinbas University told TRT World’s Newsmakers.
“The second explanation is the diplomatic one,” he says.
The lira’s recovery began soon after Turkey’s Central Bank announced it was taking all necessary measures to ensure financial stability and promising to provide "all the liquidity the banks need."
On the other hand Erdogan also rebutted Trump, and urged for a boycott of US goods, saying the US president had “shot himself in the foot” with the tariff decision.
"If they have the iPhone, there is Samsung elsewhere. We have Vestel,” said President Erdogan on August 14, signalling a boycott against a range of US-made products.
Turkish Environment and Urbanisation Minister Murat Kurum later announced Turkey’s imposition of extra tariffs on US goods, including alcohol, cigarettes and cars in retaliation to Washington's tariffs.
After the Turkish Central Bank’s move, the TL slowly began recovering, reaching around 5.7 against the dollar.
As the lira continued its recovery, support came from Qatar on August 16. The country’s Emir Tamim bin Hamad al Thani promised a $15 billion investment in Turkey.
Addressing thousands of investors in a teleconference the same day, Minister Albayrak gave more details about the new plan and updates about the state of the economy.
He said Turkey has no plans to turn to the International Monetary Fund (IMF) and impose capital controls such as restricting bank withdrawals and the movement of money in and out of the country. He also stated that Turkey is not expecting any fines against state-owned Halkbank.
Both the lira and Turkey’s government and bank bonds extended gains they had made in the run-up to Albayrak’s conference call presentation on Friday. It was later marred by threats from Washington that more sanctions await Turkey if Brunson is not freed.
Turkey’s been 'stabbed in the back and seeking new allies'
“Before it is too late, Washington must give up the misguided notion that our relationship can be asymmetrical and come to terms with the fact that Turkey has alternatives. Failure to reverse this trend of unilateralism and disrespect will require us to start looking for new friends and allies.” Erdogan said in an opinion piece that he wrote for the New York Times.
In the following week, Turkey’s talks with other potential partners gained speed.
Right after Trump’s statement, Erdogan spoke to Russian President Vladimir Putin to discuss economic and regional issues. Three days after Turkish Foreign Minister Mevlut Cavusoglu and his Russian counterpart Sergei Lavrov met in the Turkish Ambassadors' Conference in Ankara.
Iraqi Prime Minister Haider al Abadi discussed Turkey’s currency concerns, water scarcity in Iraq, oil, a new border crossing in Iraq that will create a direct link between countries, and the re-opening of Turkish consulates in Mosul and Basra.
“We will not conduct dollar-dominated transactions [with Iran], but we will not entirely commit to the US sanctions,” Abadi told reporters on Monday.
In the same week, Turkey released two Greek border guards held in a Turkish prison for more than five months on espionage charges and Amnesty International's Turkey chair Taner Kilic after 440 days in pretrial detention.
European Commission President Jean-Claude Juncker has welcomed the release of two Greek soldiers and stressed the European Union’s commitment to "strategic partnership" with Turkey.
“Turkey has nothing to fear from its European neighbours. The EU will remain engaged in this strategic partnership. We want to see a democratic, stable & prosperous Turkey," she said.
German Chancellor Angela Merkel also commented on the crisis saying that "no one ... has an interest in an economic destabilisation of Turkey.”
Another pro-Turkey comment came from Iran, which the Trump administration began re-imposing a first round of economic sanctions, mainly targeting the country’s banking sector.
"We hope that the Turkish government and people will manage these conditions and pressure imposed from outside Turkey's borders and … they will definitely do that because others cannot change the willpower of nations through coercion and threats," Iranian Foreign Ministry Spokesman Bahram Qassemi said.
President Erdogan also spoke with French President Emmanuel Macron on August 16.
Presidential spokesman Ibrahim Kalin told reporters on August 16 that their like-minded position could present an "opportunity" for Turkey and European countries to further improve relations.