Erdogan tells US: Turkey will find new friends

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"If they have their dollar, we have the people, we have Allah, " he said. It came as a Turkish delegation returned from the United States, reporting no progress on negotiations involving a US pastor imprisoned in Turkey.

Turkish President Recep Tayyip Erdogan said Turks should not be alarmed by exchange rate movements.

"If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks", he said during an address to supporters.

He does have an understandable reason: Turkey has been holding an American pastor captive for 21 months, on grounds that the preacher was involved in the failed coup attempt against Turkish president Recep Tayyip Erdogan in 2016.

The ripple effects of Turkey's spiraling currency crisis was felt globally as the Dow Jones Industrial Average and the S&P 500 fell 0.8% and 0.5%, respectively, following Trump's tweet.

By Saturday, the lira was trading at 6.43 to the dollar.

In what appears to be a diplomatic riposte, Turkey later said Erdogan had held a phone call with Russian President Vladimir Putin to discuss economic ties. "The dollar, the mollar, will not cut our path", said Erdogan, using a figure of speech he repeatedly uses to mock something. "This will be the response to those who have declared an economic war".

This year, it lost more than 40 per cent.

Although Erdogan struck a defiant tone and warned of "economic war", his foreign ministry called for diplomacy and dialogue to solve problems with Washington and Trade Minister Ruhsar Pekcan said "we implore President Trump to return to the negotiating table".

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In an opinion piece in the New York Times, he warned the US that Ankara had other alternatives as allies.

Erdogan retaliated last weekend with sanctions of his own against the American counterparts of the sanctioned Turkish ministers.

The new duties on Turkey are double the level Mr Trump imposed in March on steel and aluminium imports from a range of countries.

The country's economy was already in trouble, but the lira's selloff was heavily compounded by Donald Trump's announcement that he was doubling tariffs on Turkish steel and aluminum. The Turkish currency shed about 17% of its value in a single day.

In what appears to be a diplomatic riposte, Turkey later said Erdoğan had held a phone call with Russian president Vladimir Putin to discuss economic ties, suggesting it might gravitate further away from its North Atlantic Treaty Organisation allies toward cooperation with Russia, whose relations with the west are at their lowest since the cold war. On Thursday Ergodan said Turkey will withstand the economic pressure.

Turkey has also been hit by USA sanctions on Iran, given that half of Turkey's oil imports come from Iran.

Independent analysts argue the central bank should instead raise rates to tame inflation and support the currency.

The contagion of instability from Turkey into Europe may extend beyond the financial, should the country decide to or find itself no longer able to keep up with its end of the EU-Turkey agreement to stop the flow of Middle Eastern migrants across the Mediterranean into Greece, resulting in a second migrant crisis.

It could impose capital controls on forex transfers or even call on the International Monetary Fund for bailout help, although economists regard the former an extreme measure with only marginal probability and the latter unlikely given one of Mr Erdogan's proudest achievements was paying off all of Turkey's International Monetary Fund debt in 2013. "But if the United States can't handle relations with Turkey ... then a further deepening of relations with Moscow is an option".

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