MNI: Fresh U.S. Sanctions On Turkey Shld Target Finance Sector

by Alexandra Kelley

     WASHINGTON (MNI) - U.S. lawmakers continue to push for sanctions against

Turkey on Monday, with experts saying penalties need to be targeted against the

economy and not just the military.

     Despite the current uneasy ceasefire agreement, legislators are still

intent on punitive actions. A team of bipartisan senators are pushing for new

sanctions to be imposed on Turkey due to the country's "unacceptable" invasion

of northeastern Syria and violence against the U.S.'s Kurdish allies.

     Senator Chris Van Hollen compared the proposed sanctions to the steel

tariffs that Trump had previously imposed, stating that they will be much more

robust. Calling Trump's tariffs a "pinprick" in the Turkish economy, Van Hollen

elaborated that "steel only makes up 4/10s of 1% of all Turkish exports,"

implying that they were insufficient penalties.

     Spearheaded by Senators Lindsey Graham and Van Hollen, the updated

sanctions on Turkey "aim to cripple" the Turkish economy.

     Although many international sanctions on Turkey in recent days have focused

on arms sales, senators Van Hollen and Graham will look also at further measures

directly targeting the economy.

     Government-owned Halkbank could be targeted and moves to stop U.S.

financial intermediaries from purchasing Turkish sovereign debt could hit

Istanbul's funding plans, but also impact bond funds at home.

     A lack of foreign investment could impact the Turkish economy, which is

essentially run off of foreign capital inflows, according to Henry Barkey, a

senior fellow of the Council on Foreign Relations.

     Barkey states that Turkey doesn't have deep foreign exchange reserves, and

with the onset of sanctions, "investments will probably come to a halt, so there

won't be new money coming into Turkey in that sense."

     Brookings Fellow and Director of The Turkey Project Kemal Kirisci states

that this slowdown in investments will hit Turkey's production sector hard,

further contributing to already growing unemployment levels in the country. 

     Turkey is a big exporter to the European Union, and Kirisci anticipates a

"slowdown" in exporting power due to a lack of foreign investment as a result of

sanctions.

     Barkey agrees with Kirisci and anticipates a blow to the manufacturing

sector, as Turkey has emerged as a "sophisticated cheap producer" who produces

aircraft and auto parts and other machinery. "Those sectors will be hit to the

extent that they need imports to produce what they are doing, and import prices

will go up as the dollar goes up and the Turkish lira goes down."

     Kirisci noted that German auto giant Volkswagen has suspended efforts to

build a factory in Manisa, indicating an increased corporate reticence to

conduct business with Turkey.

     Barkey states that "Turkey's economy is far more globalized and integrated"

than it used to be, a point Kirisci corroborates saying that "More than 50% of

Turkey's exports go to the EU", and there is "no talk of the EU suspending the

customs union," which would be one of the only ways to undermine Turkish exports

to the EU.

     Kirisci observes that the lira has held up "reasonably well" amid sanction

threats but remains vulnerable after the 2018 recession fuelled by American

Pastor Andrew Brunson's detainment, coupled with Turkey's slim foreign currency

reserves.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI Washington Bureau; +1 202 371 2121; email: alexandra.kelley@marketnews.com

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