The Only Turkish Leader Who Matters Is Defiant Over Market Rout

(Bloomberg) -- Rarely a day goes by without Turkish President Recep Tayyip Erdogan addressing his nation. His silence during this week’s market bloodbath was remarkable and so was his message when he finally resurfaced.

Speaking outside a mosque in Rize, his home province, the 64-year-old Erdogan told faithful followers not to panic, a quick aside before a 2 p.m. address that will be his first appearance in almost a week.

“Don’t forget this: if they have got dollars, we have got our people, our right, our Allah,” state media quoted the president as saying. The lira fell to further record lows after the report shortly after midnight.

Turkish assets have been tanking since Washington sanctioned two of Erdogan’s cabinet ministers last week over Ankara’s refusal to free a detained American pastor. Efforts to repair relations have hit a wall.

The Only Turkish Leader Who Matters Is Defiant Over Market Rout

As the country’s all-powerful leader, Erdogan’s are the words that matter most, but he hasn’t made any scheduled public appearance since Saturday, when he promised a response that hasn’t yet come. On Friday, Turks and investors alike will be looking for signs of relief when he finally speaks in the eastern province of Bayburt, a city of less than 60,000 that overwhelmingly voted in June to re-elect him with vastly expanded powers.

“In a perfect world, the market would like to hear some credible reforms,” Guillaume Tresca, a strategist at Credit Agricole in Paris, said Thursday. “Unfortunately the bar is set high and the probability for such announcements is low. Credibility has been so destroyed that you need to create a real shock to convince markets.”

Almost every prescription for Turkey to rescue its financial markets from meltdown, and its economy from the recession that looks increasingly likely to follow, involves the country’s president backing down.

Which isn’t what Erdogan, who has led the country since 2003, is famous for. But with the lira in free fall, there’s a growing sense that something has to give.

Plunging Lira

The lira has lost as much as 16 percent since the sanctions were announced as investors fret about the possibility of further U.S. penalties and implications for Turkey’s foreign imbalance and high inflation.

The dollar surged as much as 13.5 percent on Friday, pushing the lira down to an all-time low of 6.3005. The Turkish currency was trading 7 percent lower at 5.9015 per dollar at 10:35 a.m. in Istanbul.

Those key weaknesses must be repaired before markets stabilize, but Erdogan’s reluctance to raise interest rates is tempering expectations of an imminent fix.

What Erdogan says about Pastor Andrew Brunson’s fate is of critical importance to the future of relations with the U.S., an alliance that’s unraveling over an array of issues ranging from differences over Syria policy to allegations of Iran sanctions-busting.

©2018 Bloomberg L.P.