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By Jonathan Spicer
ISTANBUL (Reuters) – The fierce anti-American Turkish President Tayyip Erdogan. rhetoric contributed to a monetary collapse in 2018 that plunged his country into recession.
He had avoided a rehearsal so far this year but last Friday, at a break from the pre-election rallies, Mr. Erdogan said the decision of US President Donald Trump to recognize Israeli sovereignty over the occupied Golan Heights risk of provoking a regional crisis.
The Turkish lira immediately began its worst one-day drop since its August record against the dollar. A week before the local elections, the lira has fluctuated widely and companies have lost $ 11 billion (8.4 billion pounds sterling) in market value.
Investors fear that a new punitive diplomatic struggle with the United States will worsen and prolong the recession in Turkey for years to come. Beyond the risk of additional economic sanctions, a collapse of relations could discourage foreign investors and affect Western tourism.
The government has blamed the Americans and other Western speculators for the fall of the lira and has taken steps to prevent liquidity from acquiring liquidity in foreign exchange markets, a tactic that some economists believe echoed its management. scattered from last year.
"Erdogan improvises day by day and does not have a game plan … so that the turkey problems can be reflected," said Nihat Bulent Gultekin, former governor of the Turkish central bank.
Turkey's membership of the North Atlantic Treaty Organization (NATO) made it an important ally of the United States against the Soviet Union, and when Erdogan came to power in 2003, the United States presented to Turkey the proof that Islam and democracy could coexist.
But later, relations between the United States are worried about the fear that Erdogan will take Turkey on an increasingly autocratic path.
Last year, Washington imposed sanctions and tariffs on Ankara on the detention of a Christian American pastor who was later released. The two NATO members are now in stalemate over Turkey's plan to buy an S-400 missile defense system to foreign Russia.
US officials said patience was running out ahead of Sunday's deadline for Turkey to buy instead an American Patriot shield acceptable to Washington and other NATO members.
This opens the way for more sanctions that could weigh on a Turkish economy that recorded its worst contraction in the fourth quarter in almost 10 years.
& # 39; NO CLEAR PATH FOR THE DESSESCALATION & # 39;
Turkish companies are vulnerable to declining confidence of foreign investors. Their foreign exchange deficit amounted to nearly $ 200 billion by the end of 2018.
A more decisive decline in the lira could inflate the non-performing loans of banks, which should already double this year.
In turn, a wave of bankruptcies would increase unemployment by more than 13% and cause problems for Turks who were already struggling to access basic necessities after food inflation reached 29% in February.
According to sources, the government this week ordered Turkish banks to hold cash in lira on an exchange market in London until the end of Sunday's local elections. They are seen as a referendum on the Erdogan regime in which his AKP party (AKP) could lose control of big cities.
Traders began to ask economists and the government that the recession would end around the middle of the year.
Confidence could quickly disappear if the cash reserves of the Turkish central bank slide to levels deemed too low by foreign investors to allow the renewal of foreign loans.
"This is an even bigger escalation than last year and its impact on the Turkish economy because the last time Turkey had (American pastor Andrew ) Brunson and, with his release, it was possible to defuse, "said Sinan Ulgen. , Istanbul-based guest researcher at Carnegie Europe in Brussels.
"While here, if the S-400 is actually delivered to Turkey, there is no clear path to de-escalation."
ELECTION RHETORIC
Even though there is a thaw on missile defense, there are other contentious issues between Ankara and Washington; military policy in Syria, support to the various leaders of Venezuela; the United States imprisoning in New York an officer of a Turkish bank in a case of violation of sanctions against Iran; the trial of a US Consulate employee who started this week in Istanbul and the disagreement over the Golan Heights. For a fact box of tense links, see:
Speaking Thursday on the Golan issue, Erdogan called Trump "tyrant".
But relations could nevertheless improve if Erdogan softened his rhetoric after the elections, especially if he got the majority of popular support.
In Ankara, where Erdogan focused his pre-election rallies, retired trucker Gultekin Koctas remembers what sparked the crisis last year.
"The dollar went up last year and they said it was because of the American pastor … Trump … sent a tweet and the dollar doubled in one night," he said. declared.
"I voted for the AKP five times, but I do not plan this time because of the dollar and the price of fruits and vegetables."
(Other reports by Behiye Selin Taner in Istanbul, and Ece Toksabay and Tuvan Gumrukcu in Ankara, edited by Anna Willard)
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