Turkish Lira Recovers From Record Slump But It’s Not Over Yet
Earlier this week, Donald Trump, President of the United States threatened to impose even more sanctions on Turkey in a state of heightened trade wars between the two nations.
While the US Dollar has continued to rise, the Turkish lira has fallen 5% amidst fresh sanctions placed on the nation, which might even lead some to believe that Trump (surprisingly) is winning the latest battle of trade wars.
Vulnerable to Foreign Economies
The underlying cause of growing concerns in the fact that Turkey, like many other countries around the world is heavily reliant on foreign investment and international financing in currencies other than their own which means which makes its economy extremely sensitive to external factors such as the strengthening of the dollar.
In addition to increased tariffs on steel and aluminum, the US government has also placed sanctions upon the Turkish Ministry of Justice and Interior Ministry.
Experts remain vary of the fact that these could be early gremlins that might even morph into a global financial crisis due to increased volatility of financial markets and the ripple effect. While Trump might believe that he is winning the trade wars, the reality of the situation is he is actually bringing countries like Russia, Iran, Turkey, Pakistan and China closer together through mutual interests and increased strategic alliances.
In response to US sanctions, Turkey itself doubled the tariffs imposed on US goods including a 120% tariff increase on US cars, 140% increase in alcohol tariffs, 60% tariff increase on tobacco along with various cosmetic products.
A Row amongst Strategic Allies
Tensions between the two countries are indeed regrettable, considering that they are NATO allies and Turkey is the second biggest contributor to NATO. According to statistical data from the IMF, the US was the fourth largest exporter to Turkey with exports totaling $12 billion with Turkey being the fifth biggest exporter to the US with total annual exports totaling $8.7 billion.
After the weakening of the Turkish lira, the country faces serious economic conditions since almost 40 percent of the country’s debts to American and European banks are in the form of euros and dollars which puts an increased strain on small and medium sized Turkish businesses who are unable to repay their corporate loans due to an increased devaluation of their national currency.
It is believed that the source of increased tensions between the countries originated from the imprisonment of a US pastor Andrew Brunson back in 2016 on charges of plotting a coup against the Turkish government and President Recep Tayyip Erdogan along with accusations of espionage and links to terrorist organizations. In retaliation, the US imposed heavy tariffs on aluminum and steel in an attempt to reprimand the country for failing to release the American pastor.
The Turkish President in a recent press release stated that the US must accept a mutual relationship on equal terms with mutual respect and even threatened that continued actions of unilateralism and disrespect towards Turkey would eventually lead to the nation seeking political friends and strategic allies elsewhere.
Up and Over the Hump
In response to this economic climate, the local government has attempted to get the support of the public by calling for a boycott of US electronic goods and proposing them to buy Samsung smartphones rather than Apple’s iPhones and ditching their US currency and gold in favor of the Turkish lira in a bid to boost the economy. Additionally the Turkish central bank has also restricted local banks from getting large sums of foreign currency which has helped stabilize the fall of the Lira.
Additionally, many of the country’s neighbors and allies have expressed their support for Turkey with Qatar pledging to provide an investment in Turkey totaling almost $15 billion which has somewhat stabilized the economy.
The Turkish lira had fallen by almost 40% this year before recovering back to 28% and just last week, the currency strengthened by another 6% after the central bank promised to provide liquidity.
However many experts believe that Turkish monetary problems are deep rooted and it will become increasingly difficult to sustain the recovery of the lira, with many economic experts believing that Turkey’s situation might actually get worse before it starts to steadily improve since the downfall of the lira will lead to an increase in foreign debt which would eventually trickle down into the banking system, further worsening the country’s economy. However, after a period of recession, Turkey will eventually find its feet and rebuild its economy in the near future.
More in Global Markets
Here’s Why Some People Never Retire
Changing Trends In recent times, it has become commonplace for baby boomers to keep working even into their 80s. Different reasons...October 29, 2018
Another Economic Crisis Could Be on the Horizon, But Where Will it Start?
The banking system has learned some hard lessons from the 2008 financial crisis which shook the global economy to its core....October 29, 2018
Companies Raising Prices Due to Tariff increase, Walmart Threatens to Follow Suit
The back and forth between China and the United States in the ongoing trade war is starting to sting the US-based...October 29, 2018
Snapchat Stock in Trouble as More Executives Leave the Company
Snapchat’s stock has been a trainwreck this year and investors are losing patience with CEO Even Spiegel and his “dictatorial management...October 28, 2018
This Retirement Expense is Making Women Lose Their Sleep
The only time living too long can become a curse is when you run out of retirement savings. And it is...October 28, 2018
Technology is Disrupting Jobs – But Here’s How You Can Keep Yours
Technology has caused major disruptions in almost every industry, and according to the World Economic Forum, more than 1.4 million jobs...October 28, 2018
Tesla Wins Case Against Ontario Government, Court Ruling Proves Carmaker was Treated Unjustly
Tesla filed a lawsuit against the Ontario government for unjustly canceling its vehicle rebate program last month, and a few days...October 28, 2018
When One Life Insurance Policy is not Enough
Yes, it’s true that you can get as many life insurance policies as you want. However, there is a certain limit...October 28, 2018
How Long Does $1 Million Last After Retirement? Research Finally Has the Answer
One million dollars is deemed a gold standard for the total sum one should have in a retirement fund. However, recent trends indicate that...October 28, 2018