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Erdogan’s threat to expel Western diplomats causes Lira’s turmoil

The Turkish lira shook on Monday after President Recep Tayyip Erdogan’s threat to expel 10 Western ambassadors added to the fierce pressure on the currency caused by concerns over the country’s economy.

In Asia, the currency fell 2.8% early Monday morning from Friday levels to TL 9.85. During this period, the volume of transactions is low, which can exacerbate the magnitude of currency market volatility. Lira recovered almost all of her losses by a late afternoon session in London, but has remained reduced by about 7% over the past month.

The recent turmoil came after Turkish leaders signaled envoys from the United States, Germany, France and seven other countries last week. Will be forced to leaveIncreasing the risk of a new crisis in Turkey’s already deeply tense relationship with the West. On Saturday, Prime Minister Erdogan appeared to have doubled the warning, saying he had ordered him to declare him a “persona non grata.”

However, by Sunday night, the ambassador had not yet received formal notice from the Turkish authorities. Diplomats hope that the issue will be discussed at a Turkish Cabinet meeting on Monday afternoon.

Turkey’s state-run Anadolu Agency said Prime Minister Erdogan “welcome” the statements issued by several Western embassies on Twitter, citing the president’s sources.

Not long ago, the US Embassy published a tweet stating its commitment to Article 41 of the Vienna Convention, which sets out the obligations of diplomats to “do not interfere with domestic affairs” in the states in which they work. Canada, the Netherlands and New Zealand all shared similar messages, while Norway, Sweden, Denmark and Finland retweeted US posts.

The Turkish president’s threat to expel diplomats came after 10 countries announced a joint declaration last week calling for the release of imprisoned businessmen and philanthropists. Ottoman Cavalla..

Wolfango Piccoli, co-president of Teneo’s consultancy, said it may be difficult for Erdogan to come back from such a strong public statement, but the president’s follow-up is “naturally.” No, “he said.

He said that the countries involved account for half of Turkey’s top 10 trading partners, and the expulsion of diplomats not only puts strong pressure on Lira, but also “the worst crisis in history between Turkey and the western world.” Will cause. ” [ruling AKP party] He came to power in 2002. “

Eurasia Group analyst Emre Peker predicted that Erdogan would be expelled and warned of the $ 765 billion economic impact of a country already suffering from 20% annual inflation and volatile currencies. ..

“These developments could exacerbate Turkey’s economic problems and fuel the dollarization trend. [of Turkish residents saving in foreign currency], Potentially causing a chaotic depreciation of the currency, “Peker wrote in a note to customers. “Given Erdogan’s insistence on pursuing unorthodox monetary policy, Ankara struggled to adequately respond to rising economic pressures, such as rate hikes, and the more serious market turmoil. Increases the risk of. “

The lira has already lost nearly a quarter of its value since early 2021 as Prime Minister Erdogan pressured the central bank to cut rates despite rising inflation.

Given the country’s large external debt and low foreign exchange reserves, serious depreciation has raised concerns among investors about the risk of a balance of payments crisis.

In a statement released Friday, rating agency S & P said Turkey’s balance of payments position remained “weak”, although it has improved somewhat over the past year.

The central bank’s “usable” reserves, excluding borrowing, are only $ 34 billion. This is compared to the $ 170 billion external debt that must be carried forward within the next 12 months.

He said these risks were partially offset by Turkey’s strong financial position compared to many other emerging markets.

Additional Report by Adam Samson of London

Erdogan’s threat to expel Western diplomats causes Lira’s turmoil

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