August 20, 2018 ADVERTISEMENT Sign Up for Our free email newsletters
Turkey's crisis isn't over yet â" it's just taking a breather.
After dropping to a record low of 7.24 lira per U.S. dollar, Turkey's currency rebounded on Friday morn ing to 5.77 per dollar. In fact, the lira was the best performing currency on Earth last week â" and it wasn't even close.
A big factor was a conference call Turkish Finance Minister Berat Albayra held with thousands of international investors on Thursday. "He said all the right things," Sailesh Lad, an official at AXA Investment Managers, told Reuters. "But it's one thing saying them and another thing doing them."
Investors were largely heartened by Albayra's promise that Turkey won't employ capital controls to limit the amount of foreign cash coming into or out of Turkey. That "was the biggest issue for investors" said Abishek Kumar of State Street. "I think a lot of the market liked hearing that," Lad added.
Unfortunately, Albayra's commitment to eschew capital controls suggests Turkey's response will prize the needs of international capital over the economic livelihoods of its own citi zens. And that suggests that Turkey's crisis could just be getting started.
Turkey's crisis has played out in pretty standard fashion. The country opened itself to international financial markets, allowing foreign capital to pour in. But it also didn't have the deep institutional resources to respond when something went wrong. In this case, it was creeping inflation and interest rates that now stand at 16 percent and 17.75 percent, respectively. Then a trade spat with the United States went south fast. All that sent foreign investors into a panic, and they pulled their money from the country just as fast as they dumped it in.
That sent Turkey's currency plunging in value. Many Turkish businesses and banks now owe vast amounts of debt denominated in foreign currencies. The lira's drop has made those debts much harder to pay off, and corporate defaults threaten to rip through Turkey's economy, and possibly spread contagion internationally.< /p>
One way to dampen a crisis like this is to employ capital controls, which prevent exactly these sorts of destabilizing hot money flows into and out of developing nations. While capital controls can limit an economy's growth, they also protect an economy from the wild swings that international investment can bring.
The titans of international finance generally hate capital controls, because they prevent investors from shopping their money around the world for the most profitable opportunity. The U.S. government and the International Monetary Fund (IMF) have spent the last few decades successfully leaning on a lot of countries to scuttle their capital controls. Turkey is just the latest emerging economy to suffer this sort of crisis as a result.
The investor class also has its preferred alternative playbook: Pressure the government to slash spending, hike interest rates to combat inflation, and take a bailout loan from the IMF to hold over the debt obligation s. The purpose, stated bluntly, is to drive a country into a deep enough recession, and drive its currency so low, that it flips into trade surplus. (Turkey is currently dealing with a significant trade deficit.)
Why is this desirable? Theoretically, because it will bring in the foreign currency needed to pay off the foreign-denominated debts, and eventually the way for the economy to right itself. No one likes to characterize the policy program in this manner, of course. But that's basically the point. And investors from Germany to Norway are already insisting Turkey do exactly this.
There are problems, however. First off, Turkey's government has actually run pretty low deficits for years now.
Furthermore, inflation isn't being driven by too much aggregate demand in Turkey. More likely, what's causing inflation is the lira's fall combined with the fact that large portions of Turkey's daily economic activity is denominated in other currencies, especially U.S. dollars. Almost all its energy supplies come from foreign-denominated imports, for example. As the lira gets weaker, the portions of Turkey's economy that trade in dollars get even more expensive, driving up Turkey's overall price level.
If that's the case, higher interest rates could paradoxically make inflation worse, not better. And wreck Turkey's economy besides.
So what else could Recep Tayyip ErdoÄan and his government try? How about letting the lira fall so they can address the trade imbalance. And weathering defaults and debt writedowns to clear foreign currencies out of Turkey's economic system. Then they could actually ramp deficit spending way up â" with a mix of stimulus, welfare expansion, and industrial policy â" and push interest rates way down to rebuild jobs, wages, and investment, and counteract the economic contraction.
Reimposing capital controls would be crucial to that strategy. If t he government wants to flood Turkey's system with new supplies of the lira, it needs to make sure the country's own wealthy elites don't just suck those supplies right back out of Turkey again and sock them away in foreign banks.
Unfortunately for Turkey's citizens, ErdoÄan appears willing to avoid capital controls and cut government spending. His government has also provided liquidity to domestic banks and backed off some regulatory requirements. But so far they're refusing any bailout from the IMF. (Turkey's government did take a $15 billion loan from Qatar, but it's probably far too small.) And ErdoÄan is dead set against interest rate hikes.
Turkey's president talks a big game about opposing the predations of financial elites. But he may not be willing to actually turn on them with aggressive economic policy. Instead, ErdoÄan will likely continue coasting on authoritarianism and demagoguery.
It's telling how qu ickly Turkey's government has already caved on capital controls: Ultimately, they'll probably conclude that knuckling under to investor class demands is the easier way out.Source: Google News Turkey | Netizen 24 Turkey
German journalist in court case cleared to leave Turkey
BERLIN â" A Turkish court has ruled that German journalist Mesale Tolu can leave the country, eight months after being released from prison during a trial on terror-related charges.
Foreign Minister Heiko Maas said Monday that the decision, taken a few weeks ago but only made public now, is "a step toward improving our relations with Turkey."
But he added that "it is also clear that this cannot remain the only step," pointing to at least seven other cases in which German citizens are detained in Turkey for what Berlin considers political reasons. Tolu's case has been one of several that have soured German-Turkish relations over the past two years.
A group that has campaigned for Tolu said that a court lifted conditions imposed on her after her release but that an exit ban on her husband, Suat Corlu, who has faced similar charges in the same proceedings, wasn't lifted.
Those restrictions had been put in place by an Istanbul court last December. Though it said Tolu could go free, it barred her from leaving Turkey and required her to report to authorities at regular intervals.
Tolu has been charged with engaging in terrorist propaganda and being a member of a banned left-wing group, the Marxist-Leninist Communist Party. She rejects the accusations. There has been no verdict yet in the trial.
Though relations between Germany and Turkey have been strained, Berlin has made clear its desire to see an economically stable and prosperous Turkey, which has been grappling with a currency crisis heightened by tensions with the U.S. over the case of a detained American pastor.
Over the weekend, the leader of Germany's junior governing party raised the possibility of some kind of German help.
"A situation could arise in which Germany has to help Turkey, independently of the political disputes with President (Recep Tayyip) Erdogan," Andrea Nahles of the center-left Social Democrats was quoted as telling the Funke newspaper group. She noted that Turkey is a NATO partner.
Chancellor Angela Merkel's spokesman, Steffen Seibert, gave that a cautious response.
"The question ... of German aid for Turkey does not currently arise for the German government," he told reporters Monday. Asked about the possibility of an International Monetary Fund package, Seibert said that seeking one is always a matter for the country concerned and the finance ministry said it didn't come up in a conversation between the German and Turkish finance ministers last week.
Erdogan is scheduled to make a state visit to Berlin Sept. 28-29. Ahead of that, T urkey's finance, transport and trade ministers will hold talks in Germany on Sept. 21, finance ministry spokesman Steffen Hebestreit said.Source: Google News Turkey | Netizen 24 Turkey
Amid tensions, shots fired at US Embassy in Turkey; no injuries reported
August 20 at 6:38 AM
ISTANBUL â" An unidentified gunman fired six shots at the U.S. Embassy in Ankara, the Turkish capital, early Monday, striking a guard booth but causing no injuries at the embassy, which was closed at the time, the Ankara governorâs office said in a statement.
The embassy confirmed it was investigating a âsecurity incidentâ that took place Monday morning. It said in a statement there were no injuries and praised Turkeyâs police for their ârapid response.â
The attack came as Turkey and the United States remained locked in a vicious feud over Turkeyâs prosecution of an American pastor on terrorism-related charges. U.S. officials have dismissed the charges as ludicrous and accused Ankara of using the pastor, Andrew Brunson, as a bargaining chip during negotiations on a range of issues dividing the two NATO allies.
The govern orâs office said that during the 5:30 a.m. attack a gunman fired six shots at the mission from a moving white car that then fled the scene. The rounds struck an iron door and a window, the statement said.
The embassy had closed to the public for four days this week because of the Muslim Eid al-Adha holiday. Ibrahim Kalin, a spokesman for President Recep Tayyip Erdogan, posted a message on Twitter later on Monday condemning the attack and calling it âan open attempt to create chaos.â Foreign missions, he added, were âunder the protection of the law.â
[Erdogan capitalizes on Trumpâs effort to break and isolate Turkey]
Tensions between the two countries escalated in early August, when the Trump administration sanctioned two top Turkish officials in retaliation for Turkeyâs refusal to release Brunson. Tit-for-tat measures over the last few weeks have helped weaken the already-faltering Turkish economy and raised fears that the troubles could spread to global markets.
As his increasingly nervous citizens watch the prices of household goods rise, Erdogan has reacted with defiance and directed public anger at the United States, accusing the Trump administration of interfering with the judiciary and waging economic warfare.
Turkish courts have repeatedly rejected appeals to free Brunson from house arrest. His next court hearing is scheduled for early October.
U.S.: âWe have more that weâre planning to doâ if Turkey doesnât release pastor
In Trumpâs standoff with Turkey, two tough-guy leaders and a deal gone wrong
Todayâs coverage from Post correspondents around the world
Like Washington Post World on Facebook and stay updated on foreign newsSource: Google News Turkey | Netizen 24 Turkey
Shots reported outside US embassy in Turkey
Three bullets hit a security booth outside the U.S. embassy in Turkey early Monday morning, according to an Associated Press report.
No one was hurt, the AP reported.
Story Continued Below
According to the Ankara governor's office, suspects in a moving white vehicle fired six times towards the embassy in Istanbul. T he incident is under investigation and officials are working to identify suspects, according to the AP.
David Gainer, spokesman for the U.S. embassy, praised Turkish police for their "rapid response." The American embassy is closed this week for the Muslim holiday Eid-al-Adha.
The attack comes amid rising tensions between Turkey and the United States, most notably over the detention of American pastor Andrew Brunson, whom Turkey has accused of espionage and aiding a terrorist organization. President Donald Trump's administration has imposed sanctions on Turkey over Brunson's detention and threatened more if he is not released.
The U.S. hit Turkey with an initial round of sanctions earlier this month. In response to the trade spat, the Turkish lira has seen a dramatic decline in value.
Brunson, who has lived in Turkey for decades, could face life in prison if found guilty of espionage charges in a Turkish court. He denies the allegatio ns against him.Source: Google News Turkey | Netizen 24 Turkey
Turkey's been a poor excuse for a US ally for a long time now
In July, a deal to release an American minister jailed in Turkey came apart because, a White House official told The Washington Post, Turkey was changing the agreement and âupping the ante.â A few weeks later, President Trump tweeted that he had doubled tariffs on steel and aluminum imports from Turkey, punctuating his thought with: âOur relations with Turkey are not good at this time!â
American officials have often insisted on seeing Turkey, a NATO ally since 1952, as a close partner, which is why the recent dramatic fallout seems so shocking. Donât these two countries share interests and values?
Not really. When you strip away all the happy talk, itâs clear the two nations arenât really, and have never been, that close. This is a relationship doomed to antipathy.
Alliances are never perfect, of course, and there have been moments over the past seven decades that justify Turkeyâs image as a close partner of the United States: President Turgut Ozalâs decision to shut down oil pipelines carrying Iraqi oil through Turkey during in the run-up to the Gulf War, at great cost to the Turkish economy, for instance.
A decade later, the Turkish government was among the first to condemn the 9/11 terrorist attacks and quickly committed the deployment of troops to Afghanistan. Turkey became an important and valued component of the NATO-led International Security Assistance Force in that country.
By that time, American officials had become accustomed to seeing Turkey as a partner, like their closest allies in Europe and East Asia. The countryâs failure to live up to this role reveals more about our own desperation for Turkey to be something it isnât, and about Cold War strategies, than about Turkish shortcomings.
In the decades since the Cold War ended, problems between the US and Turkey have piled up, but Washington and A nkara no longer share a threat that mitigates these differences. After the Persian Gulf War, which Turkey supported, it grew exasperated at sanctions on Iraq that, it believed, hindered its own economy. So it began turning a blind eye to Iraqi oil exports crossing its border.
When Turkey pledged to aid the mission in Afghanistan, its troops didnât engage in combat. Turks opposed the later Iraq War on principle, which was their right, but also repeatedly threatened to undermine the stability of northern Iraq, the one region of the country that welcomed the American occupation, because it housed a Kurdish separatist movement that advocated for Turkeyâs oppressed Kurds.
Elsewhere in the Middle East, Turkey became a champion of Hamas, supporting the organization diplomatically in its periodic conflicts with Israel and has welcomed its operatives in Istanbul. In Syria, Ankara enabled extremists who used Turkish territory as a rear area in the fight against the Assad reg ime. And the Turkish government has stirred up trouble at Jerusalemâs holy sites.
When it comes to Iran, the Turkish government (along with Brazil) negotiated a separate nuclear agreement with Tehran that ran at cross purposes to Washingtonâs; purposefully blew the cover on an Israeli intelligence operation in Istanbul gathering information on Iranâs nuclear program and opposed the Obama administrationâs effort to impose new UN sanctions on Tehran, then helped the Iranians evade those sanctions.
Turkeyâs incursions into northern Syria have complicated the fight against the Islamic State, for a time drawing Washingtonâs Syrian Kurdish allies away from the front line to face the Turks and their allies.
In 2016, Erdogan threatened to allow tens of thousands of refugees to enter Europe, apparently because of suspended talks on Turkeyâs European Union membership.
To be fair, from the Turkish perspective, the United States is not much of an ally eith er. A staggering number of Turks believe that Washington was complicit in the attempted coup dâetat in July 2016.
Meanwhile, Washingtonâs Syrian Kurdish allies are directly linked to a Turkish Kurdish terrorist organization, the Kurdistan Workersâ Party, that has been in a violent campaign against Turkey since the mid-1980s.
With the current tensions, expect the debate over who âlost Turkey,â and calls to protect the alliance to grow louder. But it is hard to lose an ally when it was not much of one to begin with.
Steven Cook is the Eni Enrico Mattei Fellow for Middle East and Africa Studies at the Council on Foreign Relations.
Special to The Washington Post.Source: Google News Turkey | Netizen 24 Turkey