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August 17, 2018 www.intellinews.com I Page 4
Turkey’s new tariffs cover around $1bn of US imports, according to a Bloomberg calculation. The figure is similar to the amount of Turkish steel and aluminium exports targeted with higher tariffs by Trump last week.
The TRY’s gains on August 15 were ascribed by analysts to measures aimed at deterring foreign investors speculating on the lira and by a hidden interest rate hike brought in on August 14. The an- nouncement of the raised tariffs did not get in the way of the currency’s ongoing recovery.
A list of the tariff hikes published by Turkey’s Of- ficial Gazette confirmed that the levies on some products will more than double. The rice tariff is now 50%, up from 20%, while for spirits the fig- ures are 140%, up from 40%; coal, 14% from 10%; beauty and make-up products, 60% from 30%; certain types of paper, 50% from 25% and cars, 120% from 35%.
“US not our only partner”
Turkish trade minister Ruhsar Pekcan said the new tariff rates would “protect the rights of Turk- ish companies”, as well as retaliating against the US tariffs on steel and aluminium.
In remarks reported by Turkish state-run news service Anadolu Agency, he added: “The United States is an important trading partner, but it is not our only partner. We have other partners and alternative markets.”
Hiking tariffs won’t help Turkey address its key financial challenge—to keep servicing its foreign loans. Turkish companies owe almost $300bn in foreign exchange-denominated debt, given that Turkish banks tapped foreign wholesale markets to help fund a credit-fuelled economic expansion. Jurgen Odenius, economic counsellor at PGIM
Fixed Income, said in a note: “The slide in the lira in recent weeks has pushed up the cost of refi- nancing those loans (finding a new lender when an existing debt matures).
“The root cause of the crisis lies in a leverage- financed domestic demand boom that increased the external financing requirement of Turkey’s corporations, banks, and government to an esti- mated $229 billion this year. Most of these liabili- ties fall on the private sector, mainly banks and corporations; the sovereign owes only $11 billion. What makes the problem worse is that the exter- nal financing requirement is trending up over the medium term, indicative of a long-standing over- reliance on foreign-funded leverage.
“As the lira collapses, this lending boom now is undoubtedly grinding to a sudden halt. Foreign financiers, whether they exist as banks or bond investors, are re-assessing the outlook and relat- ed repayment prospects. Western European banks from Spain and France are particularly exposed, with over half of the debt owed to them. The trou- ble is that the Turkish financial system and the corporate sector are short dollars.”
Backing the market consensus that Turkey re- quires a weighty interest rate hike to reverse its present economic plight, Robert Ward of the Economist Intelligence Unit said Turkey needed a “decisive orthodox” response to the currency crisis, rather than tariffs on US goods.
Ward tweeted: “Erdogan tariff increase on US cars, alcohol etc point to doubling down on “eco- nomic war” line. Suggests decisive orthodox pol- icy move from #Turkey’s govt to draw line under crisis still unlikely. Normalisation of TR relations w US now also critical to lira crisis resolution.”