Turkey Holds Out on Releasing American Pastor

(Bloomberg) -- A Turkish delegation to Washington refused to commit to releasing an American pastor, as both sides sought a way out of an escalating feud, a U.S. official said.

Turkey raised concerns about a state-run lender, Halkbank, that’s under investigation for its role in a scheme to evade U.S. sanctions on Iran and faces the prospect of a large fine by the U.S. Treasury, according to the official, who spoke Wednesday on condition of anonymity. The lira sank about 3 percent on Thursday to a new record.

The meetings came as Turkey seeks to stanch an economic meltdown amid fallout from U.S. sanctions imposed on its NATO ally over the continued detention of the pastor, Andrew Brunson, who was jailed on espionage and terrorism suspicions more than two years ago and recently released to house arrest. U.S. officials said they wouldn’t discuss relief for Halkbank, or one of its bankers currently in jail, until Brunson was freed, the official said.

Turkey Holds Out on Releasing American Pastor

The Turkish delegation was led by Deputy Foreign Minister Sedat Onal. After a 45-minute discussion at the State Department with Deputy Secretary John Sullivan, department spokeswoman Heather Nauert said in a statement that “the two discussed a range of bilateral matters, including Pastor Brunson.” She didn’t elaborate.

The visiting delegation then went to the Treasury for further discussions, according to a person familiar with the plans who asked not to be identified because the meeting wasn’t formally announced. They were expected to arrive back in Turkey on Thursday, according to Turkish officials.

The sanctions target Turkey’s Minister of Justice Abdulhamit Gul and Minister of Interior Suleyman Soylu, who “played leading roles in the organizations responsible for the arrest and detention of Pastor Andrew Brunson,” the Treasury Department said in a statement. While limited in their direct effect, the penalties added to the winds already buffeting investors and sent markets reeling.

Turkey, which has accused Brunson of helping efforts behind the failed military coup in 2016, has retaliated with sanctions on two U.S. officials.

Turkish President Recep Tayyip Erdogan accuses the U.S. of trying to meddle in its judicial procedures and rejects suspicions Ankara is holding on to Brunson as a bargaining chip to win the extradition of two Turks: Fethullah Gulen, the Pennsylvania-based preacher it accuses of instigating the botched coup, and Mehmet Hakan Atilla, the convicted Halkbank executive.

The U.S. isn’t considering handing over Gulen to Turkey, according to the official. In a dispute that began during the Obama administration, the U.S. has maintained that Turkey has failed to provide sufficient evidence against Gulen for a judge to extradite him.

The diplomatic row has taken the lira’s losses this year to about 30 percent as shoppers confront soaring prices and companies struggle to service dollar and euro debts.

While investors focus on the Turkey-U.S. talks in Washington for any signs of an easing of diplomatic tensions that added to the lira’s woes, the root of the economy’s ills runs deeper. With double-digit inflation and a current-account deficit seen at 6.4 percent of output this year, investors say the currency may continue to slide unless policy makers commit to tighter monetary and fiscal policy.

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