Turkey’s currency already was unstable and losing ground quickly because of excessive foreign borrowing, then it collapsed when it arrested and jailed an American Christian pastor, and the Islamic nation has no strategy for undoing the damage, warns a new Congressional Research Service report.
“The collapse in the value of the Turkish lira may pose questions for Congress for foreign policy and economic reasons,” the report said. “On foreign policy, economic instability in Turkey could impact U.S.-Turkey relations, with tensions heightened in recent months between the two NATO allies.
“On the economic side, U.S. direct economic exposure to Turkey is relatively low. Nevertheless Turkey’s currency crisis risks impacting European banks and spilling over to other emerging markets, which could have implications for the U.S. economy,” it said.
The CRS report, noting that Turkey is the world’s 17th largest economy, notes the lira’s value against the U.S. dollar had dropped 40 percent just this year.
For years Turkey banks and companies have been borrowing heavily from foreign investors. So its reliance on external financing already made it vulnerable to changes in terms and availability of credit.
The U.S. Federal Reserve started increasing interest rates then, and “investor perceptions of Turkey’s creditworthiness started changing.”
It began questioning the sustainability of Turkey’s economy, and then this month, two Turkish cabinet ministers were hit with U.S. sanctions for being responsible for the arrest of Pastor Andrew Brunson.
WND reported the White House recently rejected an offer from Turkey to free him in exchange for forgiveness of billions of dollars in U.S. penalties.
The Wall Street Journal reported Washington has warned Turkey that if it doesn’t release Brunson – who has been accused without evidence of plotting a government overthrow – it could impose additional sanctions.
A White House official told the Journal a “real NATO ally wouldn’t have arrested Brunson in the first place.”
Brunson, a North Carolina native who has lived in Turkey for more than 23 years, has been accused of assisting the coup attempt against Turkish President Recep Tayyip Erdogan.
A Turkish high criminal court rejected Brunson’s appeal to be released from house arrest and travel abroad.
If convicted, he faces up to 15 years in prison for “committing crimes on behalf of terror groups without being a member” and an additional 20 years for “espionage.”
President Trump, who already has doubled steel and aluminum tariffs on Turkey, tweeted a response to Turkey’s ransom offer.
“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,” he wrote. “We will pay nothing for the release of an innocent man, but we are cutting back on Turkey!”
The U.S. already has acted to halt the sale of fifth-generation F-35 fighter jets to Turkey unless Brunson is released.
The CRS report said Trump subsequently publicly discussed concerns about the lira’s fall.
The warning includes concerns that the crisis “could create a wave of defaults across Turkey’s banks and corporations, whose debts to foreign creditors have nearly doubled since 2010.”
“It is not clear how the Turkish government plans to strengthen its currency,” CRS reported. “The central bank’s foreign exchange reserve holdings are low (less than 10 percent of GDP), limiting its ability to support the lira by directly intervening in foreign exchange markets.”
It could raise interest rates but that would curb growth, the report said.
“Qatar extended a $3 billion currency swap agreement to Turkey in late August as part of a larger $15 billion investment package for Turkey,” the report said. “The currency swap agreement increases the availability of dollars in Turkey but some analysts are skeptical it is sufficient to stabilize the lira.”
Since the nation accounts for less than 1 percent of U.S. merchandise exports, the problems in the economy there would have little impact in the U.S.
It mainly would be felt through other markets that may be closer and impacted more significantly than the U.S. market, the report said.
It would be significant for the U.S. only if Turkey’s crisis spreads to other markets.