ANKARA/WASHINGTON - Turkey's financial crisis has fuelled contagion fears across the globe at a time when financial markets are already jittery over trade wars between the United States and other major economies.
Turkey's currency fell to yet another record low on Monday (Aug 13), hitting stocks in the US, Europe and Asia. The jitters have also hit the currencies of other major emerging markets, such as India and South Africa.
Even before the current routs, the lira was already the world's worst performing currency, dropping by almost 50 per cent against the dollar in the past 12 months.
The crisis has been sparked by an explosive mix of factors including an already frail US$900 billion (S$1.2 trillion) Turkish economy, record high inflation, misguided domestic policies, US interest rate hikes - which encourages investors to pull money out of emerging markets - and the escalation of a political spat with the US.
Last week, US President Donald Trump announced new tariffs on Turkish steel and aluminium after talks with Ankara to secure release of an American pastor detained in Turkey made no headway, delivering the latest blow to the ailing Turkish lira.
Here are five key questions to understand the lira crisis and its repercussions.
1. Who is the American pastor at the centre of crisis?
Frustrated with Ankara's continued detention of American Presbyterian minister Andrew Brunson, Mr Trump last Friday (Aug 10) authorised the doubling of tariffs on steel and aluminium products from Turkey.
Sanctions have already been in place since earlier this month. They were imposed over Turkey's refusal to release American citizens and diplomatic employees imprisoned in the aftermath of a coup attempt against President Recep Tayyip Erdogan in 2016.
But it is Brunson who has received the most attention in US and international media. His church belongs to the same national evangelical congregation as US Vice-President Mike Pence, who has said Turkey should release the North Carolina native or "face the consequences".
Mr Trump called Brunson a "fine gentleman and Christian leader" who is being "persecuted in Turkey for no reason".
Brunson, 50, grew up in North Carolina, the oldest of seven children in a deeply religious family. He moved to Turkey in the mid-1990s, and settled with his wife Norine and three children in Izmir, the country's third largest city. His church is among a handful of Christian places of worship in Turkey.
He faces terrorism and spying charges and could spend the rest of his life in prison if convicted.
He has denied the charges and any links to a network led by US-based Muslim preacher Fethullah Gulen, who is accused by Turkey of orchestrating the failed coup in 2016, and to the outlawed Kurdish PKK militant group.
Some in the US Congress allege that Turkey wants to hold Brunson hostage in exchange for the US extradition of Gulen, a green card holder who is living in exile in Pennsylvania.
Turkey wants Gulen extradited to face justice; he is accused of masterminding the July 2016 coup attempt against Mr Erdogan. So far, the US has refused to extradite Gulen.
2. Why are ties between the US and Turkey strained?
As recently as 2010, then President Barack Obama declared Turkey to be a "great Muslim democracy" and "a critically important model for other Muslim countries in the region".
In 2012, he even named Mr Erdogan among the top five leaders with whom he had forged a close relationship.
But ties have clearly soured. Mr Trump tweeted last Friday: "Our relations with Turkey are not good at this time!"
In recent years, Turkey has grown closer with Russia and Iran, both of which suffer from US sanctions.
These three regional powers have become the main power-brokers in the Syria conflict, which entered its eighth year this year. Most parts of the war-torn country is now back under the control of President Bashar al-Assad condemned by Mr Obama for "slaughtering his own people".
Mr Obama told the United Nations in 2015 that Mr Assad must be removed from office.
The war in Syria has also exposed rifts between the US and Turkey, both Nato allies.
Turkey has long charged that the US failed to uphold a commitment, initially made by the Obama administration, that its Kurdish allies in the fight against the Islamic State in Iraq and Syria (ISIS) would be kept east of the Euphrates River that runs from Turkey into Syria.
Further deepening mistrust was Turkey's decision in September last year (2017) to buy Russia's advanced S-400 air defence system.
The move, says US lawmakers and analysts, would compromise US' and its allies' strategic defence interests.
Middle East expert Steven A. Cook, writing in a piece for Foreign Policy magazine, explained that if Turkey were to operate the F-35 jets and depend on Russia for maintenance and spare parts for the S-400, Moscow would be in a position to glean valuable intelligence on how to detect the plane, the newest high-tech jet in the American military inventory.
Mr Trump on Monday approved a defence budget law delaying the delivery of F-35 fighter jets to Nato ally Turkey.
As part of the US Department of Defence's Joint Strike Force programme, Turkey and several other Nato member states are upgrading their fleets to include the new stealth fighters.
3. How will the crisis impact strongman Erdogan's rule?
With Mr Erdogan making himself the ultimate decision-maker in Turkey, it will be hard for him to avoid blame, say analysts.
He has protrayed the crisis as a result of plot by foreign powers, denying that economic fundamentals were behind the lira weakness.
He said the US sanctions represented a "stab in the back" by fellow Nato ally.
He has urged citizens to sell dollars and gold to support the local currency, and is threatening to punish traitors for rumour-mongering.
"We will overturn the scenarios that target our nation," Mr Erdogan said on Monday.
Economists and investors say while an overall decline in global appetite for emerging markets is hurting Turkey, Mr Erdogan's unorthodox views on economic matters have contributed to the economic policy confusion.
"His opinions matter a lot more than they did any time in the last 10 years," Mr Paul McNamara, investment director at GAM Investments, a Zurich-based asset management firm, told Bloomberg.
"In the past, he would say his thing. He was sounding off and providing political cover, and then the central bank would come out and raise interest rates. That's no longer the case."
Mr Erdogan has further unnerved investors by resisting interest rate hikes, the crisis antidote prescribed by economists.
Calling interest rates "the mother and father of all evil", he has not made a clear argument for why Turkey's central bank should keep rates low.
Keeping the interest rates low has helped fund his fiscal stimulus programme around the construction industry to generate high growth. But lower interest rates tend to stoke inflation as well. And Turkey is already dealing with inflation running near an annual rate of 16 per cent.
Re-elected to a new five-year term two months ago (June), Mr Erdogan, in his roles as prime minister from 2003 to 2014 and president since 2014, has surpassed even the tenure of his country's founder Mustafa Kemal Ataturk.
Mr Erdogan's Islamist-leaning party AKP (Justice and Development Party) first came to power in a 2002 general election,a victory attributed in part to backlash against previous coalition administrations' economic mismanagement.
Since the failed coup in 2016, Mr Erdogan has tightened control and politically manoeuvered domestic laws and policies to expand presidential powers, handing himself him unrivalled authority in not just politics but also the media, judiciary, foreign policy and the economy.
Just last month, Mr Erdogan, who has indicated during the recent presidential campaign that he wanted more control over central bank policy, raised concerns with his appointment of his son-in-law Berat Albayrak as head of Turkey's powerful new treasury and finance ministry.
4. How are the people and businesses in Turkey coping?
The currency weakness will aggravate Turkey's persistent inflation problem, making life more difficult for the population of 80 million.
With inflation already running in the double digits for months, Turkish consumers have faced rising food, fuel and medicine prices. Imported products will become much more expensive in Turkey.
Turkish pharmacists association chairman Erdogan Colak, citing data, said 503 types of drugs are being distributed only on a limited basis to the Turkish market due to the currency crisis, the Birgun daily reported last Friday, according to a report carried by Stockholm Centre for Freedom.
As the lira continues to lose value against the euro, the gap between the amount drug companies pay to European suppliers and the amount they receive from Turkish pharmacies is widening, said the report.
Turkey's annual inflation is at the highest level in 15 years and more than three times the official target.
Speaking to America's National Public Radio on eve of the June presidential vote, Mr Naci Celik, owner of an electronics store in Istanbul, said: "It's very bad right now. Look; an item that used to cost 3,500 lira is now 4,500 lira (S$940). People don't come. They're waiting to buy when the currency gets stronger."
Another voter, Mr Sibel Cemal said: Even the smallest things, clothes that kids want - I can't afford them."
While there are few reports on the impact of the latest crisis on the pockets of ordinary Turks, foreign media have carried reports of tourists cashing in on their greater purchasing power.
On Monday, barely moving lines of mainly Arab tourists snaked outside the Chanel and Louis Vuitton stores in Nisantasi, an upscale Istanbul neighbourhood.
"Were buying clothes, were buying makeup, were buying brand names," said Ms Fatima Ali from Kuwait, visiting the city with her two daughters. "The prices are very cheap."
Like many of her fellow shoppers, Ms Ali brought her suitcases along to fill up. She stood outside a makeup store holding three bags, reported Reuters.
The Times is reporting that holidaymakers from United Kingdom are taking advantage of the fact they can now get eight lira to the pound.
The lira has lost more than 40 per cent against the US dollar since January this year.
The Turkish economy is already showing signs of stress: It runs a current account deficit, combined with high levels of debt in the private sector and significant foreign funding in the banking system.
Inflation reached an annual rate of 15.9 per cent in July - more than five times the average rate for wealthy nations - and government borrowing in foreign currencies has risen dangerously high.
There are also fears of a bust in the construction sector after years of hectic growth, leaving the banks with mounting debts.
Many Turkish companies have sought to lower their borrowing costs in recent years by taking out loans in foreign currencies. Observers worry the firms will now fall behind on the loans because customers pay them in lira.
Turkey's business lobbies said on Tuesday that tighter monetary policy is needed to stabilise the lira, and US-Turkish disputes should be solved through diplomacy.
In a joint statement, the Turkish Industry and Business Association and Union of Chambers and Commodity Exchanges said a concrete roadmap should be prepared to lower inflation permanently.
5. What next?
Economists are warning that if confidence is not restored quickly, Turkey could lurch into a recession and debt crisis requiring a bailout from the International Monetary Fund (IMF).
The IMF reckons that Turkey has the least adequate level of reserves of the major emerging market economies, which makes it vulnerable to speculative attacks.
Turkey could now seek a cash injection from an outside source, but its options are limited, reported CNN Money.
Unlike recent bailout recipient Greece, Turkey is not a member of the European Union and it does not use the euro. That means the European Central Bank and wealthy countries in northern Europe probably won't foot the bill, according to CNN.
The Turkish leader may have more luck with Russia, which is facing problems of its own; China, which is trying to cool trade tensions with the US; or Qatar, the world's richest country in terms of gross domestic product (GDP) per capita.
Turkey's support has helped Doha weather a Saudi-led blockade which entered its second year in June this year.
Mr Erdogan spoke to Russian President Vladimir Putin last Friday, a conversation that included talk of deeper economic ties and mutually beneficial trade, according to Russian state media.
But any rescue would come at a steep price.
"I could imagine that some countries would give money to Turkey," Mr Carsten Hesse, an economist at Berenberg, told CNN.
"They can buy themselves big political influence quite cheaply."
Previously taboo topics like an international bailout or the imposition of capital controls are now being discussed privately in Turkish financial circles.
But Mr Hesse told CNN that Mr Erdogan would try everything to prevent an IMF bailout.
"It would be a big political loss for him."
SOURCES: BBC NEWS, CNN, AFP, REUTERS, LOS ANGELES TIMES, WASHINGTON POST, BLOOMBERG, THE GUARDIAN, NEW YORK TIMES