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.

Egyptian-Cypriot-Greece summit discusses Turkey’s provocations

Updated 21 October 2020

Egyptian-Cypriot-Greece summit discusses Turkey’s provocations

  • El-Sisi underlined the need to enhance the tripartite cooperation mechanism with Greece and Cyprus

CAIRO: A tripartite summit was held on Wednesday in the Cypriot capital Nicosia between Egyptian President Abdel Fattah El-Sisi and his Cypriot counterpart Nicos Anastasiades, along with Greek Prime Minister Kyriacos Mitsotakis.

The summit, the eighth between the leaders of the three countries, focused on discussing means of cooperation and coordination regarding issues of concern. 

Bassam Rady, the spokesman for the Egyptian presidency, said: “The tripartite summit was held to evaluate the development of cooperation among the three countries in various fields, and to follow-up on joint projects currently implemented as part of the trilateral cooperation mechanism.”

Rady added that the summit also sought to “exchange visions on means of facing the challenges in the Middle East region.”

El-Sisi underlined the need to enhance the tripartite cooperation mechanism with Greece and Cyprus, saying: “We have decided to counter acts of provocation and violations in the Middle East.”

He indirectly accused Turkey of committing violations, transferring mercenaries to conflict zones, and blackmailing Europe with the issue of immigration.“We have signed the founding charter of the Eastern Mediterranean Gas Forum,” he added.

Regarding the Syrian crisis, the president said: “We reject any foreign existence on Syrian territories.”

Meanwhile, the Cypriot president stressed that Turkey was causing more tension in the area, jeopardizing regional stability, interfering in the Syrian crisis, and sending mercenaries to Libya and the Nagorno-Karabakh region. 

Anastasiades said: “We underlined the need to take strong measures against those who support militant and terrorist groups in the region.” He pointed out that the trilateral relations were not against any state, but rather aimed to achieve peace and stability in the Middle East. 

He also called on Turkey to respect international laws and not to violate Cypriot sovereignty.

“We discussed means of enhancing tripartite cooperation in various fields especially energy,” he said. “We welcome the establishment of the Eastern Mediterranean Gas Forum,” he added, whilst reiterating the need to stop the flow of illegal immigration via the Mediterranean.

The Cypriot president also described Turkey’s hunt for gas in Greek waters in the Eastern Mediterranean as “illegal.”

Meanwhile Mitsotakis said that the practices of the Turkish leadership were unfair to its people. “We don’t want to exclude Turkey but its practices lead to that action,” he warned.

This is the eighth such tripartite summit between since 2014. It coincides with Greece’s calls on the EU to consider suspending the Customs Union Agreement with Turkey.

Greek Foreign Minister Nikos Dendias delivered a letter to the European Neighborhood Policy and Enlargement Commissioner Oliver Varhelyito, to consider the measure as a response to Turkey’s repeated violations of the agreement, in addition to its unilateral measures of gas and oil excavations in the Eastern Mediterranean.