Turkey’s stubborn defiance of U.S. harms investor confidence – analysts

Turkey is unlikely to back down in its confrontation with the United States, and its stubborn resistance to U.S. demands will likely prevent a full recovery of investor confidence, said the Center for Strategic and International Studies’ Turkey Project director, Bülent Alirıza, and assistant Zeynep Yekeler in an article published on Wednesday.

The United States placed targeted sanctions on two Turkish ministers and doubled tariffs on Turkish metals after Turkey refused to release U.S. Pastor Andrew Brunson and other U.S. citizens and employees held in the country.

The ensuing downturn brought the lira to a record low of 7.24 to the dollar on Monday, before the central bank took measures to reverse the rout, bringing the currency back to below six to the dollar at the time of writing.

Investors, however, are aware that the roots of Turkey’s economic problems go far deeper than the current diplomatic crisis with the country’s most important ally, and concerns around the large debt burden and high current account deficit have been heightened by the transition to an executive presidential system centred around Turkish President Recep Tayyip Erdoğan, said Alirıza.

Erdoğan’s combative persona and refusal to bow to U.S. pressure he described as “economic war,” and an “equally defiant” U.S. President Donald Trump, have prevented any diplomatic breakthrough from breaking the stalemate between the two countries, meaning a continuation of problems and probable further U.S. sanctions on Turkey.

“This will inevitably exacerbate the higher risk factor Turkey was carrying compared to other emerging market countries” in spite of the effective recent steps taken by the central bank, Alirıza said.

“(In) the absence of a resolution of the current crisis with the United States combined with tangible steps to address macroeconomic imbalances, including another significant interest rate hike, it may be difficult for Turkey to regain the confidence of outside investors who have been an essential part of its economic recovery since the last Turkish financial crisis in 2001, which necessitated a major IMF standby loan,” said the analyst.

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https://www.csis.org/analysis/trump-erdogan-clash-and-turkish-financial-turbulence