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Turkish markets not safe yet

Turkey’s trial by sanctions is starting only now

Turkish markets not safe yet

Investors   are signing the praise of resilient TL denominated assets, while a 250 basis point  rate cut by Central Bank of Turkey (CBRT) barely moves the exchange rate.  There is a mood among foreign financial investors that– once again- thanks to President Erdogan’s adroit wheelings and dealings, the worst is over for Turkey, and Erdogan’s second in command Mr. Berat Albayrak can safely focus on  producing a V-shaped recovery. “Not so fast!”  screams this columnist.  Turkey’s trial by sanctions is starting only now.

On Friday, “The United States is still in talks with Turkey to get Ankara to ‘walk away’ from the Russian missile defense system it bought, a senior State Department official said on Friday but warned Turkey that the risk of sanctions over the issue persisted, reported Reuters.

“There’s still work to get the Turks to walk away from the S400s: be it turn it off, send it back, destroy it, what have you,” the official told reporters, speaking on condition of anonymity. “That is still an ongoing issue. We’re talking about re-mediating, re-addressing, reconciling. That’s not off the table.”

“We are still working all these other issues that are not yet resolved with Turkey and the risk of CATSAA sanctions is part of that broader set of issues we have with the Turks,” he said, referring to penalties under the US law known as the Countering America’s Adversaries Through Sanctions Act.

 

And, this only the first shot across the bow. Al Monitor’s Bryant Harris reports:

 

President Donald Trump deemed a success the Syria deal his administration helped broker on Wednesday and immediately proceeded to lift the sanctions he had placed on Turkey. While some of his closest allies on Capitol Hill praised the agreement, they’re still eager to work with Democrats to slap Turkey with more biting sanctions.

 

Both Senate Foreign Relations Committee Chairman James Risch, R-Idaho, and Sen. Lindsey Graham, R-S.C., told Al-Monitor they would move forward with their competing Turkey sanctions bills.

 

(b)ills would sanction senior Turkish officials and Turkey’s state-run Halkbank. They would also ban US arms sales to Ankara while sanctioning any country that deals with the Turkish Armed Forces until Turkey withdraws from northeast Syria.

 

Additionally, both bills require Trump to report to Congress on President Recep Tayyip Erdogan’s net worth and clarify that the Trump administration must sanction Turkey under the 2017 Countering America’s Adversaries Through Sanctions Act because of its purchase of the Russian S-400 missile defense system.

 

Frightened enough?  No, OK. How about this?

 

US District Judge Richard Berman on October 23 ordered Halkbank, Turkey’s second largest government-run lender, to send representation to the November 5 second hearing of ‘The US vs Halkbank’ Iran sanctions evasion case, Reuters reported. The bank failed to send anyone to the first hearing and was deemed to be a “fugitive” by prosecutors.

 

“Should Halkbank fail for a second time to appear pursuant to the Second Summons, the Court will consider any appropriate sanctions for knowing and willful noncompliance,” Berman said in a court filing.

 

Such sanctions would only amount to a penalty for failing to appear in court; they would not reflect a finding that the bank was guilty of the charges against it.

 

Halkbank declined to comment on the order, according to the news service.

 

According to Bloomberg:  An early accord might have cost in the low billions of dollars. Now that charges have been filed, we think any potential settlement — if one is reached — might be on par with, or exceed, the $8.9 billion BNP Paribas paid in 2014 for sanctions violations”  — Elliott Stein, senior litigation analyst

If any sanctions were to be legislated by US, or penalties levied on Halkbank, monetary policy would be first line of defense. But, it has already dropped its rifle to head for the bunker.   On Friday President Erdogan praised CBRT for complying with his wish for lower rates, wowing to see them in single digits “soon”.

 

If external shocks  won’t kill Turkish assets, Mr. Erdogan will take matters in hand, it seems

 

Damon H Grande

 

 

 

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