Turkey Must Lift Interest Rates to Resolve Lira Crisis - Fmr. US Diplomat

© REUTERS / Murad Sezer/IllustrationA U.S. dollar banknote is seen on top of Turkish lira banknotes in this picture illustration in Istanbul, Turkey August 14, 2018
A U.S. dollar banknote is seen on top of Turkish lira banknotes in this picture illustration in Istanbul, Turkey August 14, 2018 - Sputnik International
On Tuesday, US National Security Advisor John Bolton told reporters that Turkey could end its lira-battering crisis with Washington “instantly” by freeing detained American Pastor Andrew Brunson, also adding that promises of cash from the Qatari government will not save Turkey’s economy.

Robert Pearson, a former US Ambassador to Turkey and former director general of the US Foreign Service, told Radio Sputnik's Loud & Clear that even if Turkey frees Brunson, it must take major steps to reform its economy. One place to start is raising interest rates, he said.

Turkey jailed Brunson two years ago for his alleged ties to the movement founded by Islamic cleric Fethullah Gulen, whom Ankara has accused of orchestrating the 2016 failed military coup.

In late July, Brunson was released from a Turkish prison and placed under house arrest.

Weeks ago, US President Donald Trump authorized the doubling of steel and aluminum tariffs on Turkey, up to 50 and 20 percent, respectively. The Turkish lira briefly fell 20 percent against the US dollar, Sputnik reported at the time. Last week, Turkish President Recep Tayyip Erdogan called for a boycott on electronic products from the US, which further contributed to the Turkish currency, the lira, losing more than 40 percent of its value this year, crashing to an all-time low. The US Treasury has also introduced sanctions against two Turkish ministers over Brunson's arrest.

"The issue is that now it is about the relationship [between the US and Turkey,]" Pearson told hosts John Kiriakou and Brian Becker.

"For years, Turkey has used very abusive language against the US as if they were taking the US administration for granted. The Obama administration absorbed this, but it kept up in the Trump administration," Pearson continued. 

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"The Turkish government accused the US of collaborating with ‘terrorists,' the Kurds, [but] we won the war against ISIS by working with the Kurds. To some extent, this little dust up was like a last straw, but it is what provoked the outburst from Washington," Pearson added.

Over the past few years, Turkey has distanced itself from the US diplomatically, due to what some experts have described as the rise of political Islam in Turkey.

Erdogan has labeled US allies Israel and Kurdish Peshmergas as "terror groups," and Turkey has also supported Islamic militias in Syria, even though the Trump administration was skeptical of the so-called "moderate rebels."

However, according to Pearson, even if Turkey releases Brunson, the country's economy still needs major reform.

"If I were constructing a deal, there would be the political side and the economic side," Pearson told Radio Sputnik, describing a potential mutual concession scenario between the two countries. 

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"The political side would involve saying that the charges against Brunson would not be dropped, but they [Turkey] could release him so that he could go to his family for medical care. Then there is a Turkish banker in New York who is convicted of smuggling gold for oil during the Iran sanctions era. He was probably forced into it by his own government, and letting him go back home to serve the rest of his sentence would be a nice gesture. That would solve that problem," Pearson said.

"The economic problem is very much more difficult. The Turks, in all these conferences with advisers around the world, have never said three important words: raise interest rates. This is classic economic theory for solving this kind of problem, and they won't do it. So, that problem will continue even if the Brunson problem is solved. Turkey will have to take major steps to reform its economy sooner or later, and sooner is obviously a lot better," he added.

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