ISTANBUL: Turkey’s battered lira weakened 5 per cent on Friday after a Turkish court rejected an American pastor’s appeal for release, drawing a stiff rebuke from President Donald Trump who said the United States would not take the detention “sitting down”.
The case of Andrew Brunson, an evangelical Christian missionary from North Carolina who has lived in Turkey for two decades, has become a flashpoint of tension between Washington and Ankara and has accelerated a currency crisis that has richocheted through global financial markets.
The lira has lost nearly 40pc of its value against the dollar this year, sparking a sell-off in emerging market currencies and weighing on global stocks. The crisis has been precipitated by investor alarm about President Tayyip Erdogan’s influence over monetary policy.
The selling has also deepened concerns about the broader economy, particularly Turkey’s dependence on energy imports and whether foreign-currency debt poses a risk to banks.
“They should have given him back a long time ago, and Turkey has in my opinion acted very, very badly,” Trump told reporters at the White House, referring to Brunson. “So, we haven’t seen the last of that. We are not going to take it sitting down. They can’t take our people.”
Trump’s comments came after a court in Turkey’s western Izmir province rejected an appeal to release Brunson from house arrest, saying evidence was still being collected and the pastor posed a potential flight risk, according to a copy of the court ruling seen by Reuters.
Brunson is being held on terrorism charges, which he denies. Trump, who counts evangelical Christians among his core supporters, has increasingly championed the pastor’s case.
It was not immediately clear what additional measures, if any, Trump could be considering. US Treasury Secretary Steven Mnuchin told Trump at a cabinet meeting on Thursday that more sanctions were ready to be put in place if Brunson were not freed.
The United States and Turkey have exchanged tit-for-tat tariffs in an escalating attempt by Trump to induce Erdogan into giving up the pastor. Erdogan has cast the tariffs, and the sell-off in the lira, as an “economic war” against Turkey.
At 1612 GMT the currency stood at 6.0700 to the dollar, nearly 5pc weaker. Earlier in the session it fell as much as 7pc. Turkish sovereign dollar bonds fell, while the cost of insuring exposure to Turkish debt rose.
“Diplomatic negotiations hit speedbumps and that’s not unusual in these kinds of situations,” said Jay Sekulow, a personal attorney for Trump who is also representing Brunson’s family. “We remain hopeful there will be a prompt resolution. Having said that, we fully support the president’s approach.” Whatever action the United States does take, economists said it looked likely to cause more pain for Turkish assets in the immediate future.
“There has been no improvement in relations with the US and additional sanctions may be on the horizon,” said William Jackson of Capital Economics in a note to clients, adding that the lira could see a downward trend in 2019 and beyond.
Turkey’s banking watchdog has taken steps to stabilise the currency, limiting futures transactions for offshore investors and lowering limits on swap transactions. But some economists have called for more decisive moves.
Turkey and its firms face repayments of nearly $3.8 billion on foreign currency bonds in October, Societe General has calculated. For companies, the cost of servicing foreign debt has risen by a quarter in lira terms in the past two months.
Standard & Poor’s is scheduled to release a review of Turkey’s sovereign credit rating later on Friday.
Ratings agency Fitch said the absence of an orthodox monetary policy response to the lira’s fall, and the rhetoric of Turkish authorities have “increased the difficulty of restoring economic stability and sustainability”.
Finance Minister Berat Albayrak, Erdogan’s son-in-law, told investors on Thursday that Turkey would emerge stronger from the currency crisis, insisting its banks were healthy and signalling it could ride out the dispute with Washington.
Published in Dawn, August 18th, 2018