Donald Trump has thrown the Turkish lira under the bus

IT HAD been touted as a speech that would save Turkey’s beleaguered currency, the lira, from falling off a cliff—or at least soften the landing. But just as Turkey’s finance minister, Berat Albayrak, unveiled a new plan for the economy on August 10th, America’s president, Donald Trump, tweeted that he would double tariffs on Turkish steel and aluminium products. The lira plummeted further. In the course of an hour, it reached a new low of 6.80 to the dollar, marking its worst daily performance in over a decade. It recovered a little afterwards, but has lost about 40% of its value against the dollar since the start of the year.

Mr Trump’s decision came in the middle of an increasingly heated dispute between the two estranged NATO allies. America’s Treasury froze the assets of two Turkish ministers last week over their role in the arrest and continued detention of an American pastor. (A deal that would have seen the pastor sent home fell apart at the last minute.) A Turkish delegation dispatched to Washington to defuse tensions appears to have made no progress. Turkey and the Trump administration are at loggerheads over a number of other issues. Turkey has struck a deal to buy an advanced missile system from Russia, which has unsettled many of its NATO partners.

One of the country's biggest banks has been implicated in a scheme to circumvent American sanctions against Iran. Turkey is also furious with America for outsourcing its war against Islamic State militants in Syria to what it considers to be a Kurdish terrorist group. Some Turkish officials have accused America of having a hand in an abortive coup against President Recep Tayyip Erdogan two summers ago.

Mr Erdogan seems to be in no mood for concessions. He points to the collapse of the lira as part of a plot against Turkey. In a speech made before Mr Trump's tariff announcement, the Turkish strongman said his country was in the middle of an "economic war” against outside powers, and asked his supporters to save the lira by cashing in their dollars and euros. “That would be the best response we can give to the West,” he said.

But the lira was under pressure long before the latest row with America. Encouraged by their president, who has leaned on the central bank to keep lending rates low, Turkish companies have binged on cheap credit, much of it denominated in dollars. They have accumulated over $220bn in debt. Inflation reached nearly 16% last month. Mr Albayrak, who is also the president’s son-in-law, and whose appointment as finance minister last month has further unnerved investors, has been unable to rise to the challenge. As the lira set one record low after another, he waited for a week before presenting a programme that was largely devoid of specific reform proposals. Meanwhile, the central bank has buried its head in the sand. It last raised interest rates on June 7th. The lira has since lost about a third of its value.

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Turkey’s diplomatic crisis is hastening an economic one (August 9th 2018)