Emerging markets head for ‘textbook currency crisis’

Turkey’s central bank announced a series of measures on Monday to free up cash for banks as the country grapples with a currency crisis sparked by concerns over President Recep Tayyip Erdogan’s economic policies and a trade dispute with the United States.

“If you pressure us through the dollar, we will look for other ways to carry out our works”, he said. “Can such a thing be accepted?”

Jasper Lawler of London Capital Group says investors will be watching emerging markets today.

Turkey has an action plan it will begin implementing on Monday morning to ease investor concerns, Finance Minister Berat Albayrak said on Sunday, after the lira plunged to a fresh record low in early Asia Pacific trade.

It also pledged to provide “all the liquidity banks need”.

The plunging Turkish lira is not by itself a threat, especially, as mentioned, Turkey is a minor player in the energy markets aside from acting as a transit country.

The lira’s worst day was Friday, when US President Donald Trump approved the doubling of tariffs on Turkish steel and aluminium, following Turkey’s refusal to free a US pastor who has been in detention there for almost two years.

Brunson was transferred from prison to house arrest last month, but the Turkish government has declined to release him from custody. Trump has called the preacher’s detention a “total disgrace”.

The lira has tumbled on worries over President Tayyip Erdogan’s increasing control over the economy and deteriorating relations with the United States.

“It is not at all like we sank and we are finished”.

“Turkey is under siege in the economy, as in other areas”, said Erdoğan in his address.

But Beijing would likely factor in the longer-term benefit of building an alliance with a country that is also in conflict with the U.S., potentially giving Beijing more global political leverage in future. “With God’s permission we will overcome this”.

“Negative developments in Turkey will likely be eventually seen, along with Argentina, as isolated given their exceptional external imbalances compared to most EM countries”, he said.

Turkish President Recep Tayyip Erdogan delivers a speech during Turkish ambassadors’ conference at Presidential Palace in Ankara, Turkey, on August 13, 2018.

Last week, Goldman Sachs said in a research note that a depreciation of the lira to 7.1 to the dollar would erode Turkish banks’ excess capital.

“I’ve lost about one million liras”, says 48-year-old jeweller Cahit Bas, referring to a figure that’s worth about US$155,000 (S$213,000) now, but US$340,000 in mid-2016. “You should know that to keep this nation standing is. also the manufacturers” duty”.

Over the weekend, Erdogan lashed out at the USA, threatening to find new alliances and new markets for the economy’s vast financing needs.

Turkey’s president said that the country’s economic dynamics are solid, strong and intact, but at the same time accused the U.S. of putting a bullet into a strategic partner.

“As with any loan or bond issue, there is always the chance of default, and that risk would be particularly high when a country is at the eye of the storm”, he said.

“Washington must give up the misguided notion that our relationship can be asymmetrical and come to terms with the fact that Turkey has alternatives”, wrote the Turkish strongman in the New York Times on Saturday.

“We are together in North Atlantic Treaty Organisation and then you seek to stab your strategic partner in the back”. He is facing up to 35 years behind bars if found guilty.