On Wednesday evening, following news that Turkey would be formally expelled from the F-35 program thanks to President Recep Tayyip Erdogan’s insistence on taking delivery of Russian-made S-400 missile systems, we noted that the wording of the White House’s statement didn’t suggest the Trump administration was prepared to move forward with sanctions.
For months, Erdogan insisted that he would somehow dodge US sanctions, stay in the F-35 program and procure the S-400s, something most EM watchers lampooned as a ridiculous proposition. Simply put, quite a few folks assumed he would back down on the Russian missile systems at the last minute.
Well, he didn’t – back down that is. Instead, Erdogan took the positive tone from his meeting with Trump at the G20 in Osaka as a sign that he could get away with a slap on the wrist if Ankara moved ahead with the S-400 purchase.
Read more: Erdogan Gets His S-400s As Turkey Dares Trump To Pull Sanctions Trigger
While it’s not accurate to call expulsion from the F-35 program “a slap on the wrist”, you should note that according to the Pentagon, phasing Turkey out of the program will take a while – specifically, the process won’t wrap up until March of next year. That means there’s still time for the situation to be resolved.
The question, after Wednesday, was whether Trump would pull the trigger on sanctions, which some saw as unavoidable under the circumstances. But, you can’t take anything for granted with Trump, especially when it comes to his habit of pandering to autocrats.
Fast forward 24 hours and, sure enough, Trump told reporters that the administration isn’t looking at sanctions on Turkey right now. The lira surged.
Meanwhile, in a development that perhaps underscores just how resilient Erdogan really is despite regular (and maddening for EM investors) bouts of turmoil and the fracturing economy, Turkish stocks headed into their second bull market of the year.
The Borsa Istanbul fell into a bear market in late May as a global selloff tied to renewed trade concerns collided with ongoing worries about financial stability in Turkey and jitters about the Istanbul re-run to create a perfect storm. Now, Turkish equities have recovered almost all of it, rising in six of the last eight weeks.
The only question is whether CBT will jeopardize it all with irresponsible monetary policy on the heels of Erdogan’s power move to fire Murat Cetinkaya.