By William Boston and Avantika Chilkoti
Volkswagen AG delayed approval of a new car plant in Turkey, as
investors and multinationals weighed the country's ability to
weather economic pressure from the West after its military
incursion into northern Syria.
Early investor reaction to an initial package of economic
restrictions was muted, however, with some market watchers saying
they had expected a tougher line from Washington. The Turkish lira
rose modestly against the dollar on Tuesday.
"It's a classic relief rally," said Piotr Matys, an
emerging-markets strategist at Rabobank. "There were serious
concerns that the sanctions could be quite harsh, but President
Trump opted for relatively soft measures."
Turkey is also more prepared to withstand economic headwinds
than it was as recently as last year, when a currency crisis there
sent ripples across emerging markets. The lira shed nearly a third
of its value against the dollar last year, the economy tipped into
recession and inflation topped 25%.
Growth has since picked up and inflation has tempered, even as
the central bank delivered a series of large cuts to the benchmark
lending rates. The country has also imposed mechanisms to insulate
the economy somewhat from sudden economic shocks.
Since May, companies willing to buy more than $100,000 at a time
must wait 24 hours before their transactions are processed, giving
Turkish officials time to anticipate and counter big selling that
would normally drive down the lira, people familiar with the matter
said.
Investors and executives said ramifications for markets and
businesses could intensify if the U.S., in particular, were to step
up pressure.
"One concern is if there are harsher sanctions coming, that they
seek to lock Turkey out of international capital markets. That
would be a large risk for the financial sector given their large
external debt," said Jason Tuvey, senior emerging markets economist
at Capital Economics.
On Monday, the U.S. authorized financial sanctions against
Turkey's defense, interior and energy ministries and their
agencies. It also raised steel tariffs to 50%, after lowering them
from that level in May. The restrictions were taken in retaliation
for Turkey's decision to launch a military offensive in northern
Syria, after the Trump administration started withdrawing U.S.
troops from the region.
The U.S. Treasury said it would issue waivers to ensure
sanctions didn't disrupt the entire country's energy needs, and
will allow officials and contractors conducting business for the
U.S. government to work with the blacklisted officials and
offices.
Volkswagen's move underscored the longer-term stakes for the
country's economy and for multinationals heavily invested in
Turkey, after years of economic integration with the rest of the
world. The planned Volkswagen factory is an example of how closely
Turkey has become woven into the fabric of global manufacturing
networks.
Take autos. Western car makers opened their first joint ventures
in Turkey in the 1960s, with France's Renault SA, Ford Motor Co.
and Italy's Fiat, now part of Fiat Chrysler Automobiles NV, leading
the way. Today, there are more than 400 major automotive suppliers
there, many feeding auto factories in Europe. They include big
names like Bosch GmbH, Continental AG and Magna International Inc.
Their Turkish factories are key suppliers of components for
Volkswagen and Daimler AG.
Initially, auto makers produced vehicles for the Turkish market,
but today exports dominate. Last year, around 1.6 million vehicles
were produced in Turkey, such as Ford's top-selling Transit
commercial vehicle. Around 81% of the vehicles produced in Turkey
last year were exported, mostly to Europe.
The German auto giant had chosen Turkey over Bulgaria for the
new assembly plant, which was set to make Skoda and Seat models to
free up capacity at its European plants to make electric cars.
Volkswagen had registered a Turkish subsidiary last week to start
the process.
Volkswagen's management board was expected to give final
approval in coming days to invest EUR1 billion ($1.1 billion) to
build a plant with an annual capacity of 300,000 cars. Planned for
Manisa, near Izmir in the Anatolia province, the plant was expected
to provide 4,000 jobs with the start of production in 2022.
The delay comes amid intense political pressure in Europe --
particularly from Berlin -- to protest the incursion. Germany,
France, Finland and Sweden were among the first countries to enact
an embargo on arms exports to Turkey in the wake of the attack.
"The pictures that we are seeing from northern Syria are
appalling," said Stephan Weil, who sits on Volkswagen's supervisory
board as prime minister of Germany's Lower Saxony state, which has
a 20% stake in the auto maker. "I can't imagine that under these
circumstances Volkswagen can make a billion-euro investment in
Turkey."
Volkswagen said it was monitoring "the current situation closely
and [is] concerned about current developments."
Meanwhile, Federal prosecutors in Manhattan on Tuesday charged
Turkish state-owned lender Halkbank with a multibillion-dollar
scheme to evade U.S. sanctions on Iran. Prosecutors say Turkish and
Iranian government officials received payouts of tens of millions
of dollars in exchange for promoting and helping to conceal the
alleged scheme, which they said occurred between 2012 and 2016.
--David Gauthier-Villars and Rebecca Davis O'Brien contributed
to this article.
Write to William Boston at william.boston@wsj.com and Avantika
Chilkoti at Avantika.Chilkoti@wsj.com
(END) Dow Jones Newswires
October 15, 2019 19:25 ET (23:25 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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