On August 20th, the price of the Turkish Lira fell after US President Donald Trump declared that there would be “no concessions” with Turkey over the detained US Pastor.
In an interview with Reuters on August 20th, Donald Trump rejected agreeing to any demands from Turkey to gain the release of Andrew Brunson. He also said that he wasn’t concerned that his tough stance could end up hurting European and emerging market economies.
Trump also claimed that he thought he and Turkish President Recep Tayyip Erdogan had a deal after he helped persuade Israel to release a detained Turkish citizen. He thought that Erdogan would reciprocate his actions and release Andrew Brunson, who denies all allegations that he was involved in the failed coup attempt of 2016.
“I think it’s very sad what Turkey is doing. I think they’re making a terrible mistake. There will be no concessions,” Donald Trump said.
Turkey’s demands include the US to hand over Fethullah Gulen, a Turkish cleric in the United States suspected in the coup plot against Erdogan, however that request has been refused.
Trump and Erdogan met in Brussels for a NATO summit in mid-July where they discussed Brunson’s case and what could be the way forward to release the pastor, according an unnamed senior White House official, cited by Reuters. Turkey request US help to persuade Israel to release a Turkish woman, who was held in Israel. In exchange Turkey was presumably supposed to release the pastor.
Trump said he had kept his side of the deal. “I got that person out for him. I expect him to let this very innocent and wonderful man and great father and great Christian out of Turkey,” he said.
Reuters reported that Israel confirmed that Trump had requested Ebru Ozkan’s release, deported her on July 15. Ankara has denied ever agreeing to free Brunson in return.
As closing Trump commented: “I like Turkey. I like the people of Turkey very much. Until now I had a very good relationship as you know with the president. I got along with him great. I had a very good relationship. But it can’t be a one-way street. It’s no longer a one-way street for the United States.”
Following Trump’s comments, the Turkish lira collapsed in value once again on the morning of August 21st. As reported by Reuters, the lira TRYTOM=D3 stood at 6.16 against the U.S. currency on the morning of August 21st, down from a close of 6.0865 on August 20th, when Turkish markets entered a holiday to mark the Muslim Eid al-Adha festival which continues for the rest of this week.
There has been no response from Turkish officials during their speeches after the prayers to mark the start of the holiday. Reuters cited Devlet Bahceli, leader of a nationalist party allied with Erdogan’s AK Party, told reporters: “We have no business with those who love Brunson more than us.”
On August 20th, President Erdogan promised that Turks would not be brought “to their knees” by the crisis of the lira.
The lira has lost quite a bit of its value against the US dollar in 2018, but the sharp collapse began when on August 1st the US imposed sanctions on two Turkish ministers. The biggest hit, however, was Trump’s decision to double import tariffs on Turkish steel and aluminum due to Turkey’s refusal to release Andrew Brunson. Turkey retaliated with tariffs of their own on US products such as electronics, cars, tobacco and alcohol, however it only managed to recover a bit of the lira’s value before the August 21st drop. So far in the year, the Turkish lira has lost about 40% of its value against the US dollar.
On August 16th, U.S. Treasury Secretary Steven Mnuchin told U.S. President Donald Trump at a cabinet meeting that more sanctions were ready to be imposed if the American pastor was not freed.
As a result of the collapse of the lira, Standard & Poor’s and Moody’s on August 18th downgraded Turkey’s debt to “junk.” As cited by This is Money, Moody’s cut Turkey’s sovereign rating to Ba3, from Ba2, and gave it a ‘negative’ outlook. S&P downgraded its long-term foreign currency sovereign rating, and forecast Turkey will fall into recession next year, with the economy shrinking by 0.5 per cent.
This is Money also cited S&P, which said that the collapsing lira will increase the risk for Turkey’s banks and make it “increasingly burdensome” for Turkish firms to finance currency debt.
The outlet also cited Moody’s which said that Turkey lacks a “credible” plan to tackle the root causes of its financial problems. Its currency crisis has caused contagion in emerging markets, with falls in the South African rand, the Mexican peso and the Indian rupee.