Turkish President Recep Tayyip Erdogan is vowing he won't back down in the deepening dispute with Washington.
"They were not able to make us collapse and they never will. If they have their dollars, we have our God. We will walk toward the future together with firm steps,” Erdogan said to thousands of party members at the national congress of his ruling AKP Party in Ankara.
Turkey’s currency plummeted this month following Washington’s trade tariffs and sanctions, as bilateral tensions escalated. Those tensions intensified Friday when a Turkish court ruled for the continued detention of American Pastor Andrew Brunson.
Brunson, who is being tried on terrorism charges, is a big part of the disagreement between the two NATO allies. Before Friday’s ruling U.S. President Donald Trump tweeted, “Turkey has taken advantage of the United States for many years,” adding, “We will pay nothing for the release of an innocent man, but we are cutting back on Turkey.”
Strain over Brunson’s ongoing detention cased the Turkish lira to fall Friday. Further declines of the Turkish currency are anticipated because of expected additional U.S. sanctions. "We have more that we are planning to do if they don't release [Mr. Brunson] quickly,” said U.S. Treasury secretary Steven Mnuchin on Thursday.
The Turkish lira has lost nearly 40 percent recently, with roughly half of the losses this month.
Istanbul’s Kadikoy neighborhood is the heart of the Asian side of the city. Shops and traders are struggling to come to terms with the wild gyrations in the currency's value.
Stores depending heavily on imported goods are among the hardest hit.
"Ninety percent of the goods we sell are imported goods,” said Taylan Akcora, a sporting goods shop owner in Kadikoy.
“They are all brands [we sell] and imported to Turkey from the Far East,” he continued. “There are firms who import them [shoes], we buy all our goods from the Turkey distributor of the brand. They will surely put up the prices.”
Turkey is no stranger to a currency crisis, all of which invariably resulted in a surge in inflation and unemployment. The country’s heavy dependence on imports is exacerbating the impact of the currency depreciation. Energy-poor Turkey imports more than 90 percent of its oil and natural gas.
Aslan Yuce runs a tea shop on Kadikoy's main street. Yuce claims fear of the future is stalking the streets.
“No one is feeling secure. There is no one looking at the future with hope,” he said. “I am a shop owner here, and I see people passing by, everyone looks grim, or thoughtful as if they all lost their hopes about their lives. There is such a psychological situation here,“ Yuce added.
However, it’s the sick who could be the first to suffer. “The rise in the value of the U.S. dollar and the general foreign exchange rate will drastically affect our pharmacy sector, which is so dependent on imports,” said Guliz Kaptan, who has owned a pharmacy in Kadikoy for 30 years.
“Turkish pharmaceutical producers will not even be able to purchase the active ingredients for the current selling price of the medicine on the shelf,” Kaptan added.
Much of the medicine used in Turkey is paid for at least in part by the government. President Erdogan expanded a social security network, especially for health. With rapid currency declines, however, cutbacks already have started.
“Another effect, under precautionary economic measures taken by the government,” Kaptan said. “The national health insurance has stopped paying for best-selling imported medicines, including anti-depressants.”
Further cutbacks could be in the offing with the uncertainty about the Turkish lira and for the broader economy. Two international credit rating agencies recently downgraded Turkey’s sovereign debt further into junk status.
The ratings agencies both voiced fears about the management of the economy. “Over the last two weeks, the Turkish lira has exhibited extreme volatility," said Standard and Poor's rating service in a statement Friday. "This follows Turkey's prolonged economic overheating, external leveraging, and policy drift,” S&P added.
Erdogan insists the Turkish economy remains strong, and the currency drop is a result of “economic missiles” from Washington. Economists warn even if the Turkish president reverses his stance and adopts steps called for by international investors, a painful road awaits Turkey. “It's too late,” said analyst Atilla Yesilada of Global Source Partners.
“You can solve the currency problem. You can solve the political problems, but it's too late to save the economy. A Brazilian type of recession has started. For the next year or two, Turkey will not grow. It will shrink in some quarters, a quarter of a percent of growth in some others. However, it's going to be extremely painful,“ added Yesilada.