Erdogan tells Turks to buy plunging lira as Trump doubles metals tariffs

Tayyip Erdogan said, “if there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks.” (AFP)
Updated 15 August 2018
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Erdogan tells Turks to buy plunging lira as Trump doubles metals tariffs

  • The lira plunge sent shivers through global markets as investors started to worry about contagion
  • The sell-off accelerated after the US said it would double down on steel and aluminium sanctions against Turkey

ISTANBUL/ANKARA: President Tayyip Erdogan told Turks on Friday to exchange gold and dollars into lira as the country’s currency plunged as much as 19 percent on worries about his influence over monetary policy and worsening relations with the United States.
US President Donald Trump said he had authorized higher tariffs on imports from Turkey, imposing a 20 percent duty on aluminum and 50 percent one on steel.
Trump noted on Twitter that the lira “slides rapidly downward against our very strong Dollar!“
“Our relations with Turkey are not good at this time!” he said in an early morning post.


Waves from the crisis spread abroad, with investors selling off shares in European banks with large exposure to the Turkish economy.
New Finance Minister Berat Albayrak — Erdogan’s son-in-law — acknowledged that the central bank’s independence was critical for the economy, promising stronger budget discipline and a priority on structural reforms.
The lira sell-off has deepened concern about exposure to Turkey, particularly whether over-indebted companies will be able to pay back loans taken out in euros and dollars after years of overseas borrowing to fund a construction boom under Erdogan.
Erdogan’s characteristic defiance in the face of the crisis has further unnerved investors. The president, who says a shadowy “interest rate lobby” and Western credit ratings agencies are attempting to bring down Turkey’s economy, appealed to Turks’ patriotism.
“If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks. This is a national, domestic battle,” he told a crowd in the northeastern city of Bayburt. “This will be my people’s response to those who have waged an economic war against us.”
The lira, which has lost a third of its value this year, fell on his comments and was trading at around 6.6 to the dollar after he spoke, nearly 9 percent weaker on the day. “The dollar cannot block our path. Don’t worry,” Erdogan assured the crowd.
That is unlikely to mollify investors who are also worried by a growing dispute with the United States. The NATO allies are at odds over the detention in Turkey of US evangelical pastor Andrew Brunson on terrorism charges.
TENSION WITH WASHINGTON
The tensions with Washington have, for investors, underscored Turkey’s authoritarian trajectory under Erdogan.
“The basic reason the exchange rate has gone off the rails is that confidence in the management of the economy has disappeared both domestically and abroad,” said Seyfettin Gursel, a prominent economist and a professor at Turkey’s Bahcesehir University.
“First of all, confidence needs to be regained. It is obvious how it will be done: since the final decision-maker of all policies in the new regime is the president, the responsibility of regaining confidence is on his shoulders.”
The lira briefly fell as much as 14.6 percent — its biggest one-day drop since early 2001 — before paring losses. Shares of European lenders also dropped, hit by concern about their Turkish exposure.
Turkey’s sovereign dollar-denominated bonds tumbled with many issues trading at record lows. Hard currency debt issued by Turkish banks suffered similar falls.
Meanwhile the cost of insuring exposure to Turkey’s sovereign debt through five year credit defaults swaps has spiralled to the highest level since March 2009, topping levels seen for serial defaulter Greece , which has three bailouts in the last decade.
DRASTIC
Presenting the government’s new economic model, Albayrak said the next steps of rebalancing would entail lowering the current account deficit and improving trust.
There would be a transformation in the finance ministry with regards to taxation, he said. His comments did nothing to shore up the lira currency. It fell yet further to 6.2 to the dollar at 1254 GMT, nearly 12 percent weaker on the day.
The currency has fallen more than 35 percent this year after losing nearly a quarter of its value in 2017. This week alone, it has lost about 15 percent. Such relentless depreciation drives up the cost of imported goods from fuel to food for ordinary Turks.
“The situation of Turkey cannot go on for much longer — I think they will have to intervene,” Cristian Maggio, head of emerging markets strategy at TD Securities, adding that the intervention needed to be “drastic.”
“Turkey is playing a very dangerous game. They keep lagging behind the curve and the pace of the depreciation and the penalty that the market inflicts on Turkey when it sells off is increasing at a more than linear pace, almost exponentially.”
Erdogan, a self-described “enemy of interest rates,” wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing. His comments on interest rates — and his recent appointment of his son-in-law as finance minister — have heightened perceptions that the central bank is not independent.
The central bank raised interest rates to support the lira in an emergency move in May, but it did not tighten at its last meeting.
NO BREAKTHROUGH
While Turkey and the United States disagree over a host of issues, the most pressing disagreement has been over Brunson and the detention of other US citizens in Turkey. A delegation of Turkish officials held talks with their counterparts in Washington this week but there is no sign of a breakthrough.
While there was no statement from the Turkish side, US State Department spokesperson Heather Nauert said wide-ranging conversations had been held.
“I would say we would define progress as Pastor Brunson being brought home,” Nauert said.

 


US says conserving oil is no longer an economic imperative

Updated 19 August 2018
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US says conserving oil is no longer an economic imperative

  • Fears of oil scarcity no longer driver of US energy policy
  • Surging shale production brings energy abundance

WASHINGTON: Conserving oil is no longer an economic imperative for the US, the Trump administration declares in a major new policy statement that threatens to undermine decades of government campaigns for gas-thrifty cars and other conservation programs.
The position was outlined in a memo released last month in support of the administration’s proposal to relax fuel mileage standards. The government released the memo online this month without fanfare.
Growth of natural gas and other alternatives to petroleum has reduced the need for imported oil, which “in turn affects the need of the nation to conserve energy,” the Energy Department said. It also cites the now decade-old fracking revolution that has unlocked US shale oil reserves, giving “the United States more flexibility than in the past to use our oil resources with less concern.”
With the memo, the administration is formally challenging old justifications for conservation — even congressionally prescribed ones, as with the mileage standards. The memo made no mention of climate change. Transportation is the single largest source of climate-changing emissions.
President Donald Trump has questioned the existence of climate change, embraced the notion of “energy dominance” as a national goal, and called for easing what he calls burdensome regulation of oil, gas and coal, including repealing the Obama Clean Power Plan.
Despite the increased oil supplies, the administration continues to believe in the need to “use energy wisely,” the Energy Department said, without elaboration. Department spokesmen did not respond Friday to questions about that statement.
Reaction was quick.
“It’s like saying, ‘I’m a big old fat guy, and food prices have dropped — it’s time to start eating again,’” said Tom Kloza, longtime oil analyst with the Maryland-based Oil Price Information Service.
“If you look at it from the other end, if you do believe that fossil fuels do some sort of damage to the atmosphere ... you come up with a different viewpoint,” Kloza said. “There’s a downside to living large.”
Climate change is a “clear and present and increasing danger,” said Sean Donahue, a lawyer for the Environmental Defense Fund.
In a big way, the Energy Department statement just acknowledges the world’s vastly changed reality when it comes to oil.
Just 10 years ago, in summer 2008, oil prices were peaking at $147 a barrel and pummeling the global economy. OPEC was enjoying a massive transfer of wealth, from countries dependent on imported oil. Prices now are about $65.
Today, the US is vying with Russia for the title of top world oil producer. US oil production hit an all-time high this summer, aided by the technological leaps of horizontal drilling and hydraulic fracturing.
How much the US economy is hooked up to the gas pump, and vice versa, plays into any number of policy considerations, not just economic or environmental ones, but military and geopolitical ones, said John Graham, a former official in the George W. Bush administration, now dean of the School of Public and Environmental Affairs at Indiana University.
“Our ability to play that role as a leader in the world is stronger when we are the strongest producer of oil and gas,” Graham said. “But there are still reasons to want to reduce the amount we consume.”
Current administration proposals include one that would freeze mileage standards for cars and light trucks after 2020, instead of continuing to make them tougher.
The proposal eventually would increase US oil consumption by 500,000 barrels a day, the administration says. While Trump officials say the freeze would improve highway safety, documents released this month showed senior Environmental Protection Agency staffers calculate the administration’s move would actually increase highway deaths.
“American businesses, consumers and our environment are all the losers under his plan,” said Sen. Tom Carper, a Delaware Democrat. “The only clear winner is the oil industry. It’s not hard to see whose side President Trump is on.”
Administration support has been tepid to null on some other long-running government programs for alternatives to gas-powered cars.
Bill Wehrum, assistant administration of the EPA’s Office of Air and Radiation, spoke dismissively of electric cars — a young industry supported financially by the federal government and many states — this month in a call with reporters announcing the mileage freeze proposal.
“People just don’t want to buy them,” the EPA official said.
Oil and gas interests are campaigning for changes in government conservation efforts on mileage standards, biofuels and electric cars.
In June, for instance, the American Petroleum Institute and other industries wrote eight governors, promoting the dominance of the internal-combustion engine and questioning their states’ incentives to consumers for electric cars.
Surging US and gas production has brought on “energy security and abundance,” Frank Macchiarola, a group director of the American Petroleum Institute trade association, told reporters this week, in a telephone call dedicated to urging scrapping or overhauling of one US program for biofuels.
Fears of oil scarcity used to be a driver of US energy policy, Macchiarola said.
Thanks partly to increased production, “that pillar has really been rendered essentially moot,” he said.