Why Turkish Lira has crashed against US Dollar?
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ANKARA - Turkey's lira has bled value against the dollar, leaving the country under President Recep Tayyip Erdogan facing its most serious economic challenge since a financial crisis in 2001.
The crash on Turkey's "Black Friday" of August 10 -- when the lira fell by some 16 percent -- was precipitated by a tweet from US President Donald Trump doubling aluminium and steel tariffs on Turkey.
But analysts argue that the malaise of Turkey -- a high-growth economy with widely-acknowledged potential and importance -- goes far deeper to policy and imbalances that have been allowed to persist for too long.
*Crisis in US ties*
The first warning sign trouble could be afoot came when Trump said on July 26 Turkey would be facing sanctions over its holding for almost two years of US pastor Andrew Brunson on terror-related charges.
Days later, the US imposed sanctions against Turkey's interior and justice ministers using legislation drawn up to punish foreign officials following the death of a lawyer in Russian jail. Turkey followed suit with reciprocal measures.
The tensions spooked investors already worried by the fallout of a row between Turkey and its NATO ally, with the lira falling sharply last week. And Trump then hurled fuel on the flames with his tweet over the tariffs, prompting Friday's crash.
The US imposition of sanctions "is causing capital inflows to dry up", said economists from Capital Economics.
*Economic imbalances*
Economists say there was already trouble brewing even before the current spat erupted -- many believe the government brought forward polls due in November 2019 to June this year to pre-empt any problems.
Erdogan won a new mandate in the polls with enhanced powers.
"The unnecessary diplomatic spat between Turkey and the US over the jailed pastor... has exacerbated" an already emerging economic crisis, Paul T. Levin, director of the Stockholm University Institute for Turkish Studies, told AFP.
The structural problems in the Turkish economy -- which enjoyed impressive growth of 7.4 in 2017 -- are seen as high inflation which is now close to 16 percent, a widening current account deficit and a banking system with foreign currency denominated debt.
Hussein Sayed, Chief Market Strategist at FXTM, said Turkey has "limited choices" against this background coupled with the US dispute.
Erdogan insisted Monday that the dynamics of the Turkish economy were "solid, strong and sound and will continue to be so".
*Unorthodox policies*
Since coming to power in 2003 Erdogan has built his popularity on growth and transforming areas, especially in the conservative interior of the country, with newly-found wealth.
Economists say he wants to keep the growth ticking and has thus made clear interest rates get in the way, with Erdogan describing them as the "mother and father of all evil".
Erdogan has also repeatedly aired the unorthodox view that low interest rates can help bring down inflation.
Levin argued that despite the official emphasis on the crisis with the US "it has been clear for some time to anyone following Turkey that the government's political and economic mismanagement would have consequences". - APP/AFP
