Amid sanction fears, Turkish economy under stress

Economists told Arab News that the economic impact of the sanctions package would depend on the final decision by Trump and on the strength of the Turkish economy. (Shutterstock)
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Updated 12 December 2019

Amid sanction fears, Turkish economy under stress

  • In Ankara, there is a growing concern that the green light for the implementation of CAATSA sanctions may be given in a few months

ANKARA: Following intense debates in the US Senate, economists and investors held their collective breath to watch possible signs about the determination of the White House to apply Countering America’s Adversaries Through Sanctions Act (CAATSA) sanctions against Turkey.

On Wednesday, a sanctions bill against Turkey passed in the Senate Foreign Relations Committee with a 18-4 vote, and it is now up to Senate Majority Leader Mitch McConnell to bring it to the Senate. The bill, among other measures, aims to accelerate the implementation of  CAATSA within 180 days.

If the bill passes, then it will be brought to the House of Representatives for a vote. And if it gets the green light there, US President Donald Trump would have to either sign or veto it.

There is also a possibility to override a veto. For this to happen, each chamber of Congress votes on a bill vetoed by the president, with a two-thirds majority in both negating the veto.

In Ankara, there is a growing concern that the green light for the implementation of CAATSA sanctions may be given in a few months.

Economists told Arab News that the economic impact of the sanctions package would depend on the final decision by Trump and on the strength of the Turkish economy.

If Trump chooses the least damaging five items on the 12-item sanctions menu, the economy is expected to withstand the pressure to a certain extent. However, sanctions such as prohibitions on banking transactions would significantly harm the economy’s fragile dynamics. A harsher set of sanctions could stop access to the SWIFT international banking system.

CAATSA requires US banks to deny services from foreign banks that do business with blacklisted individuals or entities, even if the transactions do not enter into the US jurisdiction.

The Turkish economy grew 0.9 percent year-on-year in the third quarter, overcoming the period of recession which followed last year’s currency crisis in August with a 30 percent slide in the lira, increasing inflation and interest rates. The currency crisis was mainly triggered by the tension between Ankara and Washington.

But amid this rosy picture of economic recovery, economists underline that there is still need for reforms to restore confidence among investors, with many warning that 2020 could be challenging.

In recent months, the mass suicides of three families drew attention to the severe financial problems in many households.

Timothy Ash, a London-based senior emerging markets strategist at Bluebay Asset Management, pointed out two options regarding impending CAATSA sanctions: Either sanctions will be light or stalled by Trump, or the economy is much more resilient and able to withstand them.

“But I am not sure this is entirely correct,” he told Arab News, adding: “The weak spot is external financing and banks. Anything which limits banks’ access to dollar markets will be very painful. Less external financing means higher borrowing costs and lower growth, it might also need a weaker currency.”

According to Ash, Halkbank looks vulnerable as it seems to be mentioned in all the various sanctions bills and is also subject of the Southern District of New York’s legal case.

“The question is whether sanctions on Halkbank cause concern about knock on effects to other banks,” he said.

State-run Halkbank was charged by US prosecutors with being part of a scheme to help Iran evade US sanctions.

But, Wolfango Piccoli, co-president of Teneo Intelligence in London, thinks that the risk of enacting CAATSA sanctions will increase when Turkey activates the S-400s.

As a law ratified by the US Congress two years ago, CAATSA mandates the Trump administration to bring sanctions on countries that have transactions with the Russian defense industry. Turkey began receiving the parts of the S-400 systems in July and in late November it tested radar-detection equipment in Ankara.

“As for the possible impact on the Turkish economy, this will depend on multiple factors, including the type of sanctions that will be selected among 12 possible measures, the reaction of Turkey and prevailing market conditions at that time,” Piccoli told Arab News.


Iran: nuclear deal with world powers worth preserving

Updated 46 min 27 sec ago

Iran: nuclear deal with world powers worth preserving

  • Iran has been steadily breaking restrictions outlined in the 2018 nuclear deal on the amount of uranium it can enrich
  • ‘There is still a broad agreement among the international community that the JCPOA should be preserved’

BERLIN: The head of Iran’s nuclear agency said Monday that the landmark 2015 deal between Tehran and world powers on his country’s atomic program is struggling since the unilateral US withdrawal, but is still worth preserving.
Ali Akbar Salehi told delegates at a conference of the International Atomic Energy Agency in Vienna that the so-called Joint Comprehensive Plan of Action, or JCPOA, has been “caught in a quasi-stalemate situation” since President Donald Trump pulled the US out in 2018.
The deal promises Iran economic incentives in exchange for limits on its nuclear program. The remaining world powers in the deal – France, Germany, Britain, China and Russia – have been struggling to offset re-imposed American sanctions.
Iran has been steadily breaking restrictions outlined in the deal on the amount of uranium it can enrich, the purity it can enrich it to, and other limitations in order to pressure those countries to do more.
Salehi, speaking in a video address, said it’s of the “utmost importance” that those countries find a solution to resolve “the difficulties caused by the illegal withdrawal of the US from the deal.”
“There is still a broad agreement among the international community that the JCPOA should be preserved,” he said.
Speaking after Salehi, US Energy Secretary Dan Brouillette made no reference to the deal, saying only that the “United States remains committed to addressing the threats posed by the nuclear programs of both North Korea and Iran.”
“On top of its horrific record as the world’s largest state sponsor of terrorism, Iran has a lamentable history of providing only grudging, dilatory, and incomplete cooperation, if at all, with the IAEA. Iran must do more, much more, to ensure both timely and complete compliance with the safeguards obligations,” he said.
The ultimate goal of the JCPOA is to prevent Iran from being able to build a nuclear bomb — something Iran insists it does not want to do.
Though it has broken the pact’s limitations, it still has far less enriched uranium and lower-purity uranium than it had before signing the deal.
It has also continued to allow IAEA inspectors full access to its nuclear facilities, which the world powers still in the deal maintain is reason enough to try and keep it in place.
Iran recently granted the IAEA access to two sites dating from before the deal, which Director General Rafael Grossi said he hoped “will reinforce cooperation and enhance mutual trust.”