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.

Trump: Mideast peace plan likely rolled out in days

Updated 24 January 2020

Trump: Mideast peace plan likely rolled out in days

JERUSALEM: President Donald Trump said Thursday that he’ll likely release the long-awaited White House Mideast peace plan before his meeting early next week with Israeli Prime Minister Benjamin Netanyahu and his main political rival Benny Gantz.
“It’s a great plan. It’s a plan that really would work,” Trump told reporters on Air Force One en route to a Republican Party meeting in Florida.
He said he was surprised that both Netanyahu and Gantz were willing to take a break from campaigning for the March 2 elections to join him Tuesday in Washington.
“They both would like to do the deal. They want to see peace,” Trump said. “Look, Israel wants peace, Palestinians want peace. They all want peace. Not everyone wants to say it.”
He said his administration has talked briefly to the Palestinians, who have rejected the administration’s peace plan before it even comes out.
“We’ve spoken to them briefly. But we will speak to them in a period of time,” Trump said. “And they have a lot of incentive to do it. I’m sure they maybe will react negatively at first, but it’s actually very positive to them.”
Vice President Mike Pence announced the invitation for Netanyahu and Gantz to visit during at a meeting with the prime minister in Jerusalem after addressing an international forum Thursday on the Holocaust. He said that at Netanyahu’s request, the invitation was also issued to Gantz, a former army chief.
The plan is expected to strongly favor Israel, and is unlikely to garner any international support if it is seen as undermining the prospect of a two-state solution.
“We have had no better friend than President Trump,” Netanyahu said. “With this invitation, I think that the president is seeking to give Israel the peace and security that it deserves.”
The Palestinians rejected Trump’s peace efforts after he recognized disputed Jerusalem as the capital of Israel and moved the US Embassy there in May 2018. The Palestinians want east Jerusalem, which Israel occupied in the 1967 war and annexed, to be their capital.
“If this deal is announced with these rejected formulas, the leadership will announce a series of measures in which we safeguard our legitimate rights, and we will demand Israel assume its full responsibilities as an occupying power,” said Nabil Abu Rdeneh, a spokesman for Palestinian President Mahmoud Abbas.
He appeared to be referring to oft-repeated threats to dissolve the Palestinian Authority, which has limited autonomy in parts of the Israeli-occupied West Bank. That would force Israel to resume responsibility for providing basic services to millions of Palestinians.
“We warn Israel and the US administration from crossing the red lines,” Abu Rdeneh said.
Israel’s Channel 12 TV, citing Israeli officials, said the plan is expected to be extremely favorable toward Israel and offer it control over large parts of the occupied West Bank. The Palestinians seek the entire territory, which was also captured by Israel in 1967, as the heartland of a future independent state. Most of the international community supports the Palestinian position.
Netanyahu has said he plans to annex the Jordan Valley as well as Jewish settlements across the West Bank, which would all but extinguish any possibility of creating a viable Palestinian state.
Netanyahu has tried to make that the cornerstone of his campaign for reelection following unprecedented back-to-back elections last year that left him in a virtual tie with Gantz, with neither able to cobble together a ruling coalition.
The deadlock was deepened by Netanyahu’s indictment last year on serious charges of bribery, fraud and breach of trust stemming from three long-running corruption investigations. Netanyahu has asked Israel’s parliament to grant him immunity.
Next week’s meeting could produce an awkward scene. Gantz has made Netanyahu’s indictment the focus of his campaign to oust the prime minister. And his Blue and White party is leading an effort in parliament to block Netanyahu’s immunity request before the election. At the same time, they will be joined by an impeached president who is being tried in the Senate.
The US was believed to be holding back on releasing the peace plan until Israel had a permanent government. Those calculations may have changed as the deadlock in Israeli politics looks to be further prolonged.
Trump may also be looking for a boost from evangelical and pro-Israel supporters as the Senate weighs whether to remove him from office after he was impeached last month, and as he gears up for a reelection battle this year.
Pence was among dozens of world leaders in Jerusalem on Thursday for the World Holocaust Forum. Many of the participants, including Russian President Vladimir Putin and French President Emmanuel Macron, also paid visits to the Palestinians in the West Bank.
A Palestinian official said Abbas asked the visiting French and Russian presidents to support the Palestinian position when the plan is published.
“He asked them to refuse and act against any Israeli annexation of Palestinian lands,” said the official, speaking on condition of anonymity because he was discussing closed meetings.
While the plan is expected to be friendly to Israel, it could still face opposition from Netanyahu’s hard-line partners.
Defense Minister Naftali Bennett, leader of the ultranationalist Yamina party, called Trump a “true friend” of Israel and said the country likely stands before a “historic opportunity.” But he said his party would not allow the transfer of any land to Palestinian control or for a Palestinian state to be established.