- US Treasury Secretary Steven Mnuchin threatened further sanctions against Turkey if it fails to release detained American pastor Andrew Brunson.
- “We have more that we’re planning to do if they don’t release him quickly,” Mnuchin told a cabinet meeting, without elaborating on what would be involved.
- Further sanctions or tariffs could exacerbate the already fragile economic situation in Turkey, and broader emerging markets.
- The Turkish lira is falling against the dollar on Friday after Mnuchin’s statement.
Treasury Secretary Steven Mnuchin on Thursday evening said that the US could look to impose fresh sanctions on Turkey if President Erdogan doesn’t release imprisoned American pastor Andrew Brunson.
“We have more that we’re planning to do if they don’t release him quickly,” Mnuchin said during a White House cabinet meeting on Thursday, according to pool reporters. He did not elaborate on what measures the US is willing to take if Turkey continues to play hardball over Brunson.
Brunson, a pastor who is a long time resident in Turkey, is alleged by the government to have links to the outlawed Kurdistan Workers Party and the Gulenist movement, both of which are accused of being involved in 2016’s failed coup against Erdogan.
Around the same time as Mnuchin’s comments, President Trump intervened on Tweeted that Turkey has “taken advantage of the United States for many years.”
“Turkey has taken advantage of the United States for many years. They are now holding our wonderful Christian Pastor, who I must now ask to represent our Country as a great patriot hostage. We will pay nothing for the release of an innocent man, but we are cutting back on Turkey!” he Tweeted.
The Turkish lira, which had stabilised against the dollar on Thursday, is falling again on Friday. It hit an all-time low of 7.2 lira to the dollar earlier in the week.
Here’s the chart of the dollar against the lira as of 12.35 p.m. BST (7.35 a.m. ET) – remember, a rising dollar means a falling lira:
Washington has already placed a series of sanctions against Turkey, including last week’s announcement of a doubling of tariffs on metal imports into the US from Turkey. Those sanctions caused great turmoil in financial markets, and contributed to the huge slump seen by the Turkish lira in the last two weeks.
The lira’s collapse has plunged the entirety of the emerging market space into chaos, with contagion causing the likes of the South African rand, the Argentine peso, and the Indonesian rupiah, to slump in response.
Although the lira has started to recover this week, and is now down only 10% from mid-last week, having at one point been more than 30% lower. However, if Washington were to place further sanctions on Turkey, it is highly likely that the lira would see another slump, which would in turn exacerbate the problems with Turkey’s fragile economy.
Inflation in the state is at a 14-year high in Turkey, at close to 16%, but the country’s central bank – which is under the control of Erdogan – refuses to raise interest rates, a simple mechanism for bringing down rampant inflation.
Turkey is also seemingly on the brink of a major debt crisis, as a weakening lira makes it harder for Ankara to pay its international dues.
Tilmann Kolb of UBS wrote in a note last week that Turkey could be headed into “a full-fledged balance-of-payments crisis.”
“At this point, we are not sure if the policymakers have a detailed plan for coordination or disagree on the measures, or if communication and implementation are being blocked at the highest level,” Kolb wrote.
Further sanctions would likely make this an even more likely outcome, and could cause an even greater spiral effect on the state.
While Turkey’s economy is fairly unimportant globally, the country itself holds an important strategic position as a buffer zone between the West and the Middle East, and as such has outsized influence in foreign policy circles. As such, any economic crisis in the country could be a major threat to the West.
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