Finance minister out to convince investors but threat of fresh US sanctions looms

This article is more than 2 years old

This article is more than 2 years old

Turkey’s finance minister sparked a recovery in the lira after he addressed thousands of international investors, pledging to protect beleaguered local banks and cut public spending to prevent the country defaulting on its loans.

Berat Albayrak, who has faced criticism for failing to tackle the country’s growing financial crisis, spoke to around 6,000 investors on a conference call to rebuff concerns that a funding squeeze on Turkey’s banks and a damaging trade war with the US would force him to seek a rescue bailout from the International Monetary Fund (IMF).



Albayrak, who was appointed as finance minister last month by his father-in-law, president Recep Tayyip Erdoğan, said Turkey will not hesitate to provide support to the banking sector, which was capable of accessing funds itself during the current turmoil in financial markets. He added that deposit withdrawals by panicked investors remained low and manageable.

Turkey buys time before day of IMF reckoning Read more

“We are experiencing unfavourable conditions but we will overcome,” he said.

The Turkish lira was up 4% against the US dollar following the conference call and after reassuring words from the French president, Emmanuel Macron, and Germany’s chancellor, Angela Merkel, that Turkey’s stability was important. A pledge by Qatar to invest $15bn in the financial sector has also helped stabilise the situation.



However, Albayrak’s attempt to shore up confidence in the lira was quickly undermined by the US Treasury secretary, Steve Mnuchin, who reportedly told president Donald Trump in a cabinet meeting that he was preparing further sanctions against Ankara. The lira slipped back to settle at just 1% up on the previous day.

The lira had fallen by more than 40% since the beginning of the year before a rally earlier this week that buoyed investors, which was sparked by moves from the central bank to prevent speculators undermining local commercial banks.

The finance minister’s intervention also touched on the impact of US trade tariffs, which Trump imposed after Turkey failed to release pastor Andrew Brunson.

Last week Trump said he would increase import duties on Turkish steel imports to 50% and on aluminium to 20%, tweeting: “Our relations with Turkey are not good at this time!”

Albayrak said the country will turn to other partners – such as China and Germany – to help it navigate the current situation. He added that major corporations that have large borrowings in US dollars were in a comfortable position to meet short-term liabilities.



Turkish officials announced on Wednesday that they would be increasing tariffs on imports of certain US products as a local court denied the pastor’s appeal to be released from house arrest.



Tariffs on American cars were doubled to 120% while the tariff on alcoholic drinks rose to 140%.



Turkey’s vice-president, Fuat Oktay, said on Twitter that the tariffs were increased “within the framework of the principle of reciprocity in retaliation for the deliberate economic attacks by the United States”.

Ankara said it will impose extra tariffs on imports of products including rice, vehicles, alcohol, coal and cosmetics without a US climbdown.

Stock markets in Europe and the US, which declined on Wednesday, recovered on Thursday, although largely in reaction to better-than-expected corporate results than the situation in Turkey. The FTSE rose 0.8% to 7,562 while the German Dax nudged 0.4% higher to 12,220. The Paris CAC stood at 5,345, up 0.8%. In New York, the Dow Jones industrial average showed its biggest percentage gain - 1.58% - in four months, buoyed mainly by hopes of avoiding a tariff war with China and Walmart’s turnaround figures.

Per Hammarlund, the chief emerging markets strategist at Nordic bank SEB, said that despite Albayrak’s pledges, Turkey could still be forced to seek help from the IMF.

He was critical of the government’s stranglehold over the central bank, which he said was prevented from taking much-needed measures by the government.

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“Albayrak continues to reassure investors that Turkey will address its structural problems but at this stage, crisis measures, including sharply higher [interest] rates, a tightening of fiscal policy and support to troubled sectors such as construction, retail and banking will be key,” he said.

“A credible commitment to grant the Turkish central bank monetary policy independence is critical. Unless the government introduces an austerity programme within the next weeks, an event such as sharply higher inflation could trigger a full-blown balance of payments crisis.”

Gulay Girgin of the Turkish bank Sekerbank, argued that Albayrak performed well: “It was Albayrak’s first investor call. In general, I found it successful as the rhetoric suggests that they are aware of the problems in Turkey’s economy and reasonable solutions are being prepared.”