Morning Commentary: Turkey’s financial troubles accelerate; broader emerging markets weaker also

By Rebecca Melvin

New York, Aug. 10 – Turkey’s financial crisis took a turn for the worse on Friday with yields on its sovereign debt surging past 20% as the Turkish lira plunged another 14% to an all-time low. The currency is down 47% for the year so far.

Meanwhile other emerging markets currencies sold off and the U.S. dollar surged. The South African rand and Hungarian florint saw notable declines on Friday, and there were concerns that Turkey’s problems could create outflows from other emerging-market countries, pushing the dollar even higher.

Turkey’s markets have been under pressure all week but on Thursday president Recep Tayyip Erdogan took a defiant stance, saying the country will stand up to the pressure, and stating “don’t forget, if they have their dollars, we have our people, our righteousness, our God.”

Market players took this to mean that there measures taken to stop the deterioration will not be forthcoming such as allowing the central bank to significantly raise interest rates or asking the International Monetary Fund for a financial backstop, sources said.

Instead, Erdogan on Friday called on the Turkish people to exchange their gold and dollars for lira in an effort to shore up the currency, which stood at 6.42 to the dollar, up from 4.90 a week ago.

Both Erdogan and Russian prime minister Dmitry Medvedev used the term “economic war” in separate statements referring to U.S. sanctions.

In response, U.S. president Donald Trump said in a tweet on Friday that he has authorized a doubling of tariffs on Turkish aluminum and steel to 20% and 50%, respectively.

But even without the threat of U.S. sanctions, which are tied to a diplomatic spat over an American pastor who has been detained since 2016 on what the United States believes are politically motivated charged, Turkey’s situation is precarious. The country has 16% inflation and its external debt as a percentage of gross domestic product is above 50%.

Meanwhile, talks between a delegation of Turkish officials and U.S. counterparts in Washington this week have so far led to no resolution over the dispute over the Protestant pastor, Andrew Brunson.

© 2015 Prospect News.
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