Turkey’s downfall continues apace. Erdogan has been thumbing his nose at NATO by purchasing Russian military hardware. Trump has been warning Erdogan against doing this for months, and today he finally brought the hammer down:
Late on Thursday, the Turkish lira suddenly tumbled when Washington made it clear that this aggression will not stand, and the White House said it had terminated a preferential trade agreement with Turkey, finding the country no longer needed help as a developing country. However, the US did halve tariffs on Turkish steel from 50% to 25%.
n March, US Trade Rep Robert Lighthizer noted the administration’s intention to remove Turkey from the list of nations benefiting from the GSP.
The announcement comes at a very painful time for Turkey, which has been gripped in a stagflationary recession since March 2019, which has sent the Lira plunging, while the country’s inflation has soared. Predictably, with traders already on edge, and looking at how the US could retaliate for Erdogan’s unwillingness to budge on the Russian S-400 order, the Turkish lira tumbled as much as 1%, as the USDTRY spiked from 6.058 to 6.10 before recouping some losses.
Earlier today, Moody’s warned that if the Turkish government didn’t put forward “a credible broad-based plan to address the structural issues” and avoid a downgrade, “and in the near-term dampen the market volatility pressure on the lira,” it would result in a downgrading of the country’s sovereign credit rating.
But the bigger risk facing Turkey is that the amount of foreign denominated debt repayments for the balance of 2019 exceed the nation’s entire stock of FX reserves, excluding gold.
Erdogan once said that “If They Have Their Dollars… We Have Our God.” Hopefully, their god has a big pile of gold, because Erdogan is going to need one soon as the value of the lira continues to crash.