Qatar Pledges $15b Investment : Turkish Lira Weakens 6% on Threat of More US Sanctions

Turkey’s battered lira weakened more than 6% against the dollar on Friday, after a US warning that Ankara should expect more economic sanctions unless it hands over detained American evangelical pastor Andrew Brunson.

It has lost nearly 40% of its value against the dollar this year, hit by both the diplomatic rift and investor alarm about President Recep Tayyip Erdogan’s influence over monetary policy. Erdogan, a self-styled “enemy of interest rates”, wants to lower borrowing costs despite high inflation, Reuters reported.

The currency crisis has deepened concerns about the broader economy—particularly Turkey’s dependence on energy imports and whether foreign currency debt levels pose a risk to the banking sector.

“There has been no sign that the central bank will be allowed to raise interest rates significantly and return rates to positive territory,” said William Jackson of Capital Economics in a note to clients. “Similarly, there has been no improvement in relations with the US and additional sanctions may be on the horizon.”

US Treasury Secretary Steven Mnuchin told President Donald Trump at a cabinet meeting on Thursday that sanctions were ready to be put in place if Brunson, who is on trial in Turkey on terrorism charges, was not freed.

Trump later said in a tweet the US “will pay nothing” for Brunson’s release, “but we are cutting back on Turkey!” He called Brunson “a great patriot hostage”. Turkish officials say the case is a matter for the courts.

The crisis is also threatening efforts by Turkish banks to refinancing syndicated loans. The currency crisis escalated shortly after banks embarked on their second biannual loan refinancing round in early August.

Despite that, foreign currency deposits held by local investors rose to $159.9 billion in the week to Aug. 10, from $158.6 billion a week earlier, central bank data showed on Thursday.

Qatar's Pledge

Erdogan has found a benefactor to help pull Turkey from the brink of a financial crisis as Qatar promised to invest $15 billion in the country, Bloomberg said.

With the pledge, Turkey is reaping the rewards of standing by its wealthy Arab ally while Persian Gulf Arab neighbors led by Saudi Arabia cut off diplomatic ties with Qatar last year. Since tightening his grip on power in June elections, Erdogan’s relations with the US, a NATO ally, have deteriorated.

"That Turkish support for Qatar during the stand-off with Saudi Arabia finally paid off,” Tim Ash, a senior emerging-market strategist at BlueBay Asset Management LLC in London, said by email. “Let’s see if the Chinese and Russians put some money on the table."

While he seeks new alliances, Erdogan is also trying to repair his relationship with other traditional allies in Europe, such as Germany. The two countries fell out during the election over Berlin’s refusal to let Turkish politicians campaign on German soil. 

Germany, France Extend Support

The support messages from EU members, first Italy, then Germany, Spain and France, was a surprise not only for the Turkish people and the markets, but for the government as well.

Erdogan and German Chancellor Angela Merkel talked over the phone and agreed on meeting in Berlin in September. The two leaders confirmed their commitment to strengthening cooperation through mutual high-level visits and contacts, said the sources, who asked not to be named due to restrictions on speaking to the media, Anadolu Agency reported.

They also discussed Turkish Treasury and Finance Minister Berak Albayrak meeting with his German counterpart.

The Turkish economy is of great importance for both Germany and the EU, Germany Finance Minister Olaf Scholz said, according to Turkish ministerial sources.

Albayrak and Scholz spoke over the phone about the US sanctions and steps taken against Turkey's economy, according to a statement from the ministry. The two ministers have agreed to take steps to enhance economic ties.

Albayrak said that support offered to Turkey proved promising for positive relations with the EU. The two ministers decided to meet in Berlin on Sept. 21, according to the statement.

Erdogan and French President Emmanuel Macron also spoke over the phone on Thursday about economic and financial ties, according to presidential sources. The discussion focused on the economic and financial situation in Turkey, according to a statement issued by the Elysee Palace.

The French president "recalled the strong economic and trade links between the European Union and Turkey and underlined his commitment to a stable and prosperous Turkey". He assured Erdogan of France's support in this regard, read the statement.

Erdogan and Macron underlined the importance of further developing economic and financial ties between the two countries as well as mutual investments.