Published: Sun, August 19, 2018
Markets | By Terence Owen

Turkey's president says country will defy economic threats

Turkey's president says country will defy economic threats

"Turkey did not and will not surrender to those which try to make Turkey as a strategic target", he said in reference to the US without naming the country.

It's the latest blow to the country whose currency, the lira, has taken a battering amid concerns about fundamental economic problems and a diplomatic and trade dispute with the United States.

ANKARA - A day after two major ratings agencies downgraded Turkey closer to junk status amid a currency crisis, Turkish President Tayyip Erdogan said he would challenge those playing "games" on the economy.

"Turkey will continue cross-border operations by expanding them further", Erdogan said.

The lira last traded at 6.0100 to the dollar at 2159 GMT, 3 percent weaker after tumbling as much as 7 percent earlier. "We remain hopeful there will be a prompt resolution".

The conflict between North Atlantic Treaty Organisation allies is even more personalized because of U.S. President Donald Trump and Turkish President Recep Tayyip Erdogan, whose uncompromising statements contribute to a sense that the tension will ratchet up before any possibility of a climbdown.

Whatever action the United States takes looks likely to cause more pain for Turkish assets.

A banking watchdog's step to limit foreign exchange swap transactions also helped the currency.

But some economists have called for more decisive moves.

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The lira hit a record low of 6.24 per dollar on Friday, before recovering to 5.92 - still down a whopping 7 per cent on the day. U.S. imports of Turkish steel account for 4 percent of total steel imports, according to statistics from 2017.

S&P said the downgrade of the debt rating to "B+" "reflects our expectation that the extreme volatility of the Turkish lira" which will undermine Turkey s economy.

Turkey and its firms face repayments of almost US$3.8 billion (S$5.2 billion) on foreign currency bonds in October, Societe General has calculated.

Investors are concerned that Turkey's has amassed high levels of foreign debt to fuel growth in recent years, and as the currency drops, that debt becomes more expensive to repay, leading to potential bankruptcies.

Companies that for years have borrowed overseas at low interest rates have seen their cost of servicing foreign debt rise by a quarter in lira terms in two months.

The downgrade was triggered by what it described as a further weakening of Turkey's public institutions and a related reduction in the predictability of Turkish policymaking, Moody's said.

Brunson's detention is one aspect of a broader, multi-pronged diplomatic spat between the U.S. and Turkey. Turkey is dependent on imports, priced in hard currency, for nearly all of its energy needs.

Despite the political tensions, the lira rebounded some 6 percent on Wednesday, strengthening to around 6.0 to the U.S. dollar.

Despite its economic woes, Turkey did this week find support from friendly Qatar, which promised to make a $15 billion direct investment in the country.

There was also optimism about better relations with the European Union after a Turkish court released two Greek soldiers pending trial.

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