Fresh off a couple of classic performances at rallies on Friday, Recep Tayyip Erdogan is showing no signs of backing down in the face of one of the worst currency collapses in recent memory.
Less than two months after a landmark election that saw the Turkish autocrat consolidate power and barely a month after handing the reins of the economy to his son-in-law, Erdogan is facing the prospect of an outright economic collapse.
The writing has been on the wall all year long (see here for our pocket guide) but the tipping point came last week when the U.S. slapped sanctions on Turkey in an effort to secure the release of detained North Carolina pastor Andrew Brunson, who stands accused of conspiring with Fethullah Gulen and the PKK in an effort to subvert Erdogan’s government (see here for the pocket guide on that).
On Friday, the bottom fell out in earnest, with the lira careening beyond 6.80 at one point. Donald Trump made things immeasurably worse by announcing the administration will double metals tariffs on Turkey.
(Annotating the lira’s Friday collapse)
The Turkey ETF logged its worst week in history.
According to reports out Friday evening, Turkish banks are having trouble keeping up with demand for foreign currency from customers, a state of affairs that suggests Erdogan’s calls for citizens to trade in their dollars, euros and gold for lira aren’t being heeded. It also suggests capital controls may be next.
In an Op-Ed for the New York Times published Friday evening, Erdogan advised the Trump administration that if relations don’t improve, Turkey might “start looking for new friends and allies.”
On Saturday, speaking a rally, Erdogan doubled and tripled down on the aggressive rhetoric, accusing the U.S. of trying to “tame” Turkish citizens and imploring Washington to consider whether Brunson’s fate is worth a splintering in relations between NATO allies.
“I call out to those in the United States. It is a shame”, Erdogan said. “You are trading a strategic NATO ally for a pastor.”
Given that he was present at last month’s NATO summit (where Trump actually fist-bumped him in a show of authoritarian solidarity), you’d think Erdogan would understand that Trump doesn’t care much for preserving NATO alliances.
The Turkish leader also claimed the Trump administration has put a deadline on the Brunson negotiations. “[They] are saying ‘You must send him by 6pm tomorrow, or you will see’”, he claimed.
I’m not sure he meant that literally (as in “tomorrow, Sunday”), but whatever he means, it’s clear that he’s not inclined to “send” Brunson anywhere, anytime soon, let alone “by 6PM tomorrow”.
Subsequent reports suggested he was referring to a deadline delivered last week:
Erdogan publicly confirms that Turkey was given a deadline on August 8 to hand Pastor Brunson back to US “or else”
— Ragıp Soylu (@ragipsoylu) August 11, 2018
Erdogan also characterized interest rates as “a tool of exploitation”. And then there was this:
It is wrong to dare bring Turkey to its knees through threats over a pastor.
Shame on you, shame on you!
You get the point.
What’s going to be a real “shame” is if there’s not some resolution to this situation by Monday, because unless there’s i) definitive progress on Brunson’s release, ii) an indication that Ankara has reached out to the IMF, or iii) some kind of absurdly large emergency rate hike, the lira is going to be no-bid.