Political Observation - Causes of Turkish Lira's Continued Slide

بسم الله الرحمن الرحيم

Political Observation - Causes of Turkish Lira's Continued Slide

Turkish president Recep Tayyip Erdoğan slammed the Western credit rating agencies yesterday, labelling them as impostors and racketeers for downgrading their rating of the Turkish economy, banks and financial institutions. His scathing attack came during a speech he delivered at the Turkish-Kyrgz Business Forum in Bishkek having stated the exchange rate manipulation aimed at undermining Turkish economic dynamics which he described as strong, solid and intact.

Erdoğan also slammed the trade wars and protectionism and called for a gradual termination of the dollar’s hegemony, urging all countries of the world to discard the dollar from their commercial transactions and adopt their own currencies.

Recep Tayyip Erdoğan’s speech was delivered in the context of the continued slide of the Turkish lira which the Turkish regime attributed to the trade war waged by the US administration against his country. Despite reassurances expressed by Turkish officials, the Turkish lira continued its slide today. Hours after the Turkish central bank released inflation figures which had increased to 17.9%, the Lira fell by more than 1.5% against the dollar to 6.65.

Erdoğan’s decision on 9 July 2018, the day he was sworn in as president, to give himself the powers to appoint the governor of the central bank, his deputies and members of the Monetary Policy Committee clashed with the US administration since for America, this represents the first practical step Erdoğan has undertaken in his endeavour to destroy, or at least rein in, the financial lobbies representing the backdoor through which the Western powers, especially America, penetrate Turkey to influence and meddle in Turkish domestic affairs.

After Erdoğan had succeeded with the help of his party and supporters in dominating the armed forces, the police, the judiciary and the education system, he set about purging the economic and financial networks from the lobbies affiliated to the West or those averse to his policies. During the presidential election campaign last May, Erdoğan pledged before a congregation of businesspersons to combat the “curse” of interest rates which he described as the “mother of all evils”.

From a capitalist economic perspective, a high interest rate leads to lowering inflation and prevents the weakening of the currency but in the long term, it often leads to an economic downturn as the level of investment diminishes because high-interest rates encourage people to deposit their capital in bank accounts to reap lucrative usurious gains without the need to undertake any economic activity. This is how people’s wealth and efforts are swallowed up and how wealth becomes confined to a few individuals who enslave the masses.

The banking sector and monetary policy overseen by the central bank are the only fronts Erdoğan and his group have not seized to liberate from foreign influence due to the free market policy in the financial markets allowing the domestic and foreign movement of investors’ funds without regulation, in addition to the Turkish government’s reluctance to implement capital controls measures.

As for the issue of the “spy priest” Pastor Andrew Brunson, not only did Donald Trump exploit to exert pressure on the Turkish lira but he also doubled US tariffs on Turkish steel and aluminium in order to trigger the lira’s “rapid slide downwards” according to his own statements. Hence, America’s first motive behind its attack on the Turkish lira was to force Erdogan to steer clear of the monetary and financial policy of Turkey’s central bank; the second motive was to undermine Europe’s currency and economy. The German finance ministry stated in its monthly report on 20 August that economic developments in Turkey posed a fresh foreign economic threat. The ministry added that the threats were still existent especially in respect of the ambiguity surrounding Brexit and future US trade policies. Although Donald Trump had imposed tariffs on European steel and aluminium exported to America, his onslaught on European trade, however, did not cause a major impact on Europe’s economy; but his attack on the Turkish lira led major European countries, especially Germany and France, to side with Turkey in its financial crisis.

Western European countries’ decision to side with Turkey in the lira crisis was prompted by the need to protect their major investments and loans to Turkey. Hence, Europe’s position is an act of defence against America’s indirect attack on the Euro. This is corroborated by the European-Turkis trade which is close to $200 billion; Germany is the biggest investor in Turkey with $40 billion and 7000 German firms operating in Turkey. Holland’s investments in Turkey total €22 billion. Furthermore, several European banks, headed by Spain with $38 billion, have offered loans to the Turkish government and firms. Hence, what these European banks fear most is the Turkish firms defaulting on their loans, thus causing the shares of the banks to fall. Turkey’s foreign debt is estimated at $438 billion, most of which is owed by private companies with approximately 28% government debt. This is why Germany and France have sided with Turkey in the lira crisis since they fear the crisis moving to the Eurozone due to the huge European investments and loans in Turkey. German Chancellor Angela Merkel stressed from the start of the crisis that her country was keen for Turkey to be “economically prosperous”. French president Emmanuel Macron for his part stressed the importance of a stable Turkish economy and a stronger partnership between the two countries.

Since the EU is one of Turkey’s major trading partners, it would not be in the interests of its countries to support the American attempts to destabilise the Turkish economy and weaken the lira as it would inevitably impact negatively on several EU countries. German minister of economic affairs and Energy, Peter Altmaier, launched a scathing attack on the US trade war and indicated that it “would lead to slowing and destroying economic growth and to generating fresh constituents of instability.” 

Although most European countries have sided with Turkey in the lira crisis, knowing that they are also targeted by America, they have however exerted pressure on Erdoğan to borrow from the IMF and keep the Turkish central bank and its monetary policy setting independent from the Turkish presidency in order to defend the euro and European stock markets. The German government urged Turkey to accept the IMF’s aid package to tackle the slide in the lira threatening the Turkish economy. Der Spiegel magazine reported that German finance minister Olaf Schultz raised this issue during a telephone conversation with his Turkish counterpart Berat Albayrak - Erdoğan’s son-in-law – on Thursday, 16 August 2018. 

Moreover, when the lira crisis erupted, German Chancellor Angela Merkel announced that Germany wanted to see “a prosperous Turkish economy” and that Turkey should “endeavour to guarantee the independence of the central bank.” This came in the context of an answer to a question on the situation on Turkey on 13 August 2018; she also stressed that “no one wants instability in the Turkish economy.” 

The European support for Turkey in its trade war against America is not confined to Turkey. Europe has also decided to support Iran in its crisis with America over the nuclear deal. Europe realises that her companies, trade and currency are the target of the American attack on the Turkish lira and the sanctions imposed on Iran after Trump had decided to scrap the nuclear deal. Hence, it is not surprising to learn that Germany is leading a European campaign aimed at establishing monetary systems independent of Washington. In his editorial to the German business newspaper Handensblatt, German foreign minister Heiko Maas mentioned that “Europe should establish monetary systems independent of the US if she wants to maintain the nuclear agreement between Iran and the major powers which Donald Trump has scrapped…It is therefore essential that we strengthen European autonomy by establishing payment channels independent of the US, a European monetary fund and an independent swift system.”

These are the major reasons behind the slide of the Turkish lira, though the main reason remains the structuring of the country’s economy on capitalist foundations, the most dangerous of which was foreign loans which placed a significant chunk of the country’s economy in the hands of foreign powers who could subsequently influence the lira’s fate.

As for the other reasons that media outlets and economists have mentioned about the collapse of the Turkish currency, they had been present before the crisis erupted. Moreover, several countries have been experiencing the same problems and yet, neither their currencies and shares collapsed, nor their firms and banks went bankrupt. 

The rift between America and Turkey is not confined to the attack on the lira under the pretext of the detention of the spy Brunson. It is rather a deeper rift related to Turkey’s refusal to act as a vanguard to NATO and to be affiliated to America in her foreign policy. The successive crises began when Turkey decided to carve for herself an independent path away from the functional role she had been performing since the downfall of the Ottoman Khilafah. 

Based on the aforementioned, the tactical rapprochement between Russia and Turkey in several regional files such as the Middle East, the Black Sea and the Caucasus, and the S-400 missile system deal, the Turkish nuclear power plant and the TurkStream project, in addition to the US-Turkish rift over the Kurdish entity in East Euphrates, the Turkish stance vis-à-vis the US sanctions on Iran, the Fethullah Gulen extradition file, the issue of the spy Brunson, the delivery of the F-35 jetfighter order and the US attack on the Turkish lira, all these issues among others are a reflection of America’s unacceptance and aversion to Turkey’s endeavour to gain independence, break free from the shackles of affiliation to America and proceed in a domestic and foreign policy determined by the priorities of Turkish national security and the vital interests of “New Turkey”. 

The world leaders who dread America’s hegemony are in fact the ones who enable her to enslave their masses and pillage their livelihoods. America fears that the countries of the world may break free from her grip and despite the submission of most of the world’s leaders to her volition, she remains wary of any negative impacts on her unilateral dominion over world politics. Hence, she is always prepared to take all necessary steps to prevent such a scenario. For instance, certain leaks and indications corroborate the possibility of making the Trump administration, which has been brought to the forefront by the deep state to execute what it had planned, a scapegoat in order to maintain America’s hegemony over the rest of the world, especially in the wake of the shocking decisions the Trump administration had made against influential states across Europe, Russia, China and Turkey among others. 

Finally, the major calamity in the Muslims’ lands is the leaders’ and rulers’ inclination to sacrifice their masses and the riches of their lands just because a Kafir American official says so, despite the fact that the Islamic Ummah is actually capable of resisting and fighting back to regain her dignity and might and attain the pleasure of Allah the Almighty by carrying the message if the resolve of her sincere children was instituted. 

23 Dhul Hijjah 1439
3rd September 2018