The economic politics of Turkey’s currency fever

The first news about the Turkish currency crisis on Friday, Aug. 10 was not that Treasury and Finance Minister Berat Albayrak’s press conference had been postponed from 11:00 a.m. to 2:00 p.m. but that there had been a steep increase in the already ascending United States dollar against the Turkish Lira.

As of the evening of Aug. 9, the U.S. dollar traded at 5.50 liras and the euro was at 6.24 liras. It was after Turkish President Recep Tayyip Erdoğan’s speech in the evening hours, when he said, “they may have their dollars, but we have our people and God,” that it hit its lowest-ever rate of 6.49. When the postponement of Albayrak’s press conference was announced, the rate began to tumble to the 5.80s.

It was about that time speculations surfaced from the contacts of the Turkish diplomatic team, who had traveled to Washington on Wednesday, Aug. 8, over a number of rifts, the most minor being the continued arrest of American pastor Andrew Brunson. According to those speculations, which have not been commented on so far by any Turkish official, there were mainly three points. First of all, the American side no longer wants to negotiate the release of Brunson because it is a must. Secondly, Americans want every Turkish demand in writing. And the third claim is about a deadline that will expire next Wednesday, Aug. 15.

The speculations about the deadline did not cause another tumble, possibly because there is still time until next Wednesday.

Albayrak took the floor almost a quarter past 2:00 p.m. to reveal his “New Economic Approach” in a press conference in Istanbul, where all leading industrialists, bankers, economic associations were invited by the minister. But he decided to wait a bit more, as the Turkish president, who is also Albayrak’s father-in-law, had started to address the people in the eastern town of Bayburt and no television channels would think to broadcast him while Erdoğan was on.

As Erdoğan said Turkey would win this economic war, the U.S. dollar gained slightly. The term was used almost an hour before by Russian Prime Minister Dmitry Medvedev to criticize the economic sanctions by United States President Donald Trump on other countries, including Russia.

There was another steep rise in the dollar when Erdoğan called on citizens to exchange their savings in U.S. dollars, euros and gold for liras in the spirit of mobilization, just as on the night of the military coup attempt on July 15, 2016. When the president concluded his speech, the U.S. dollar was at 6.25 liras and the euro was at 7.10 liras.

As soon as Erdoğan concluded his speech, Albayrak began his press conference. The part about fighting inflation, budgetary discipline and Central Bank independence could be perceived very positive under other circumstances. At first, it was thought the momentary rise during Albayrak’s speech was due to his words about the struggle with the traditions of the Finance Ministry mechanisms, which he was in charge of. But no, it was a tweet by Trump. After Erdoğan’s speech, Trump tweeted the following:

“I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!”

When Albayrak concluded his conference, without taking any questions, the U.S. dollar was at 6.57 liras and the euro was at 7.53 liras. The last piece of news in this political economy exercise, which has cost Turkish people a lot, was a telephone conversation between Erdoğan and Russian President Vladimir Putin, which hit the wires almost an hour after Trump’s tweet.

“It will pass,” Erdoğan assured people in Bayburt. “They have tried to beat us up with tanks, jets, and coup attempts before and are now trying to circle us with currencies and interest rates. We will come out of this stronger.”

Yet for the time being, it is almost impossible to forecast at which point the depreciation of the lira will stop.