Published: Sat, August 11, 2018
Money | By Bruce West

Global stocks drop, triggered by Turkey's deepening economic crisis

Global stocks drop, triggered by Turkey's deepening economic crisis

Trump decided in March to impose import duties of 25 percent on steel and 10 percent on aluminum imports from several countries, including Turkey.

This prompted yet another tweet from President Trump, this time announcing the actual authorization of the doubling of tariffs on steel and aluminum for Turkey.

Image: Donald Trump claimed 'relations with Turkey are not good at this time!'

Turkey remains at loggerheads with the USA in one of the worst spats between two North Atlantic Treaty Organisation allies in years over the detention of American pastor Andrew Brunson and a host of other issues.

Trump's tweet caused a further drop in the Turkish currency, which is now down 13 percent on the day.

Relations between Washington and Turkish President Recep Tayyip Erdogan also have worsened because of the detention of three locally employed U.S. consular workers, trade matters and differences over Syria.

Turkish President Tayyip Erdogan has remained defiant despite the lira being in free fall.

Trump made his unexpected announcement on Twitter from his golf club in Bedminster, New Jersey, as the Turkish currency, the lira, fell to all-time lows against the US dollar.

Turkey's economy is regarded as fragile because of its high debt, which the worldwide Monetary Fund estimates is 50 percent of its gross domestic product.

Turkey was facing artificial financial volatility, Erdogan said, and people should not pay close attention to foreign exchange prices, and should instead focus on the "big picture".

Whether or not further declines in the Rand occur now depend largely on the fate of the Lira.

Last week, the Trump administration said it would review Turkey's duty-free access to USA markets, a decision that could impact some $1.7 billion of imports.

Turkish newspaper Hurriyet and other media reports quote Erdogan as making the comment to a group of worshippers following traditional Muslim Friday prayers during a visit to the northern city of Bayburt.

USA stocks fell Friday amid the geopolitical concerns that pushed the Turkish lira to the record low against the dollar.

Adding to investors' concerns, Erdogan pledged a continuation of his debt-fueled construction policy to boost the economy, which is blamed for Turkey's rampant inflation and has added to currency weakness.

But Erdogan said Turks should not be alarmed by exchange rate movements. A delegation of Turkish officials held talks with their counterparts in Washington this week but there was no sign of a breakthrough. "This will be my nation's response to those who have declared an economic war", Erdogan said during the rally. Today, however, this does not appear to be on the cards, amid growing divisions between Turkey and the US.

The new system also increased Erdogan's control over the central bank, which on July 24 baffled markets by leaving rates unchanged despite inflation that in July came in at 15.85 percent.

Erdogan spoke briefly Thursday night and alluded to problems with the currency, saying "various campaigns" were underway, adding: "If they have dollars, we have our people, our righteousness and our God".

The Lira touched a historic low versus the U.S dollar.

Treasury and Finance Minister Berat Albayrak - who is Erdogan's son-in-law - was scheduled later on Friday to outline a 'new economic model'.

Far worse than that, though, is this has also sent Turkey's currency on a downward spiral that threatens to destroy its entire economy. Gultekin hopes that some sort of compromise between Turkey and the U.S. can be reached, enabling Erdogan to have an "honourable exit" and come up with a substitute for the International Monetary Fund stabilisation programmes of previous crises.

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