At present, there can be no talk of the re-elected Turkish president showing any signs of being weary of office. Over the last few hours he has set the agenda in two areas that are important from the viewpoint of international investors. Market players are hardly enthusing about the news that Mehmet Simsek will no longer be a member of the future cabinet. Simsek had been Deputy Prime Minister and was responsible for financial and economic issues. Investors considered him a counterbalance to the president and his in-part highly unorthodox economic ideas. Another person who has had to clear his desk is hitherto Minister of Finance Naci Agbal. He, too, was considered business-friendly and was held in high regard by the markets.
The new strongman in the fields of economics and finance is Berat Albayrak. Previously Minister of Energy, the prevalent opinion is that (compared to his predecessors) he is less convincing in terms of extensive expert knowledge or experience in this terrain. As the president’s son-in-law his suitability as a specialist presumably played a subordinate role in his appointment to the post. After all, Albayrak is touted as a possible crown prince who could in due course succeed Erdogan. In the recent election campaign he gave a taste of his political approach. Albayrak claimed, fully in line with his father-in-law, that the crunch in the Lira exchange rate was the result of an “operation that originated abroad” in an effort to bring down the government. Media reports suggest that he is not averse to supporting Erdogan’s theory whereby lower key lending rates would bring lower inflation with them. The president has likewise placed loyal companions in other key ministries. Thus, Foreign Minister Cavusoglu has retained his post. Fuat Oktay, the future Vice-President, Mustafa Varank, who is to head the Ministry of Industry and Technology, and Hulusi Akar, the incoming Minister of Defence, can all be expected to support and implement whatever the president wants without strongly objecting.
For Erdogan, efforts to ensure the state more strongly toes his line certainly do not stop with the government proper. Rather, as he announced when on the campaign trail, he has already taken first steps to increase his influence over the country’s monetary policy. In future, the central bank governor and his deputy will both be presidential appointees. The government will no longer have a say in the matter, just as the central bank governor will no longer be able to recommend who his deputies are. Moreover, the latter will no longer have to be able to look back on at least ten years’ professional experience in the field for which they will be responsible. Erdogan has admittedly not conferred the power upon himself to be able to dismiss the central bank governor and his deputy as he can with other state institutions. However, the men at the helm of the central bank will now only be in office for four rather than five years.
This combination of greater influence over monetary policy and Erdogan’s “highly creative” ideas on how to combat high inflation appropriately give cause to fear that the Turkish central bank will in future be more restrained in its actions. Only about two months ago, the central bank policymakers opted for an about turn and raised key lending rates noticeably as the Lira had come under considerable selling pressure and the inflation rate had risen at a surprisingly fast pace. The concern that there may be a renewed change of policy is not completely unjustified, as can be seen from a statement by a major Turkish business federation, which went on the record saying that “the independence of the central bank is very important”.
The impact of Erdogan’s most recent agenda-setting can be expressed in figures in terms of the trend for the Lira. Thus, within only a few hours yesterday the Lira had lost some 5% against the Euro and the US Dollar. Market players evidently feel the prospects weigh too heavily that Erdogan will push through the long-standing demand that key lending rates be lowered and further damage confidence in the central bank and the country’s currency.