The value of the Turkish lira hit a record low Thursday amid reports of a deadlock during talks in Washington between Turkey and the United States.
The lira has fallen more than 10 percent since last week, when Washington imposed sanctions against two Turkish ministers who have detained American Pastor Andrew Brunson.
“I would assume the Americans have now understood that they have the upper hand over Turkey,” said analyst Atilla Yesilada of Global Source Partners. “They have got Turkey where it hurts, i.e., the threat of financial sanctions.”
Analysts say international investors were already jittery over Turkey’s debt-fueled growth and rampant inflation, along with President Recep Tayyip Erdogan’s unorthodox economic policies.
Then on Monday, a sell-off in the lira was touched off by reports that the Trump administration was considering ending Turkey’s duty-free access to the U.S. market. The lira recovered a bit upon news of the diplomatic visit but began to slide again when initial reports of a U.S.-Turkish agreement were contradicted.
“Just a series of errors have killed investors’ confidence. The Brunson case and American sanctions were the straw that broke the camel’s back,” Yesilada said.
Under house arrest
Washington is demanding Brunson’s immediate release. He has been under house arrest while standing trial on terrorism charges. Washington dismissed the allegations as baseless, accusing Ankara of hostage-taking. U.S. diplomats are also reportedly pushing for the release of a number of jailed American citizens, along with three local employees working at U.S. diplomatic missions in Turkey.
“The kind of progress that we want is for Pastor Brunson, our locally employed staff and other Americans to be brought home. That’s the real progress that we’re looking for, and obviously, we’re not there yet,” U.S. State Department spokeswoman Heather Nauert said Tuesday.
The Turkish delegation in the U.S., led by Deputy Foreign Minister Sedat Onal, is pushing for concessions from Washington over Turkish state lender Halkbank. The bank is facing a significant fine after a New York court this year convicted a senior executive, Mehmet Hakan Atilla, of violating U.S. Iranian sanctions. Ankara is also lobbying for the return of Atilla, who is serving a 32-month sentence in a U.S. jail.
Media reports that Ankara reneged last month on a deal for Brunson’s release have severely undermined Turkey’s bargaining position, said international relations expert Soli Ozel of Istanbul’s Kadir Has University.
“The non-release of the priest was a breach of contract in Washington’s eyes, and that’s why the response was furious. All those who were aligned to make things well with Turkey have turned against Turkey,” Ozel said.
‘New economic model’
In a bid to restore calm to the financial markets, Berat Albayrak, Turkey’s minister of finance and treasury, announced that a “new economic model would be unveiled” Friday.
His statement said the program would seek to rein in debt-fueled growth and target inflation — critical demands imposed by international investors. In the wake of the announcement, there was a momentary pause in the lira’s decline before it continued to fall.
Analysts point out that the continuing slide of the Turkish currency indicates that time is not on Ankara’s side.
“It’s do or die. Essentially, we are at the very brink of a currency or balance-of-payments crisis,” Yesilada said. “We are inches away from a major run on the Turkish lira. Foreign investors and domestic consumer confidence are at zero.
“Nothing less than a statement from the White House that the crisis has been resolved and no more sanctions are in the pipeline for Turkey would end the painful collapse of the currency. Statements from Ankara won’t do it. Ankara doesn’t have any credibility.”