The top policymaker picks of Turkey’s re-elected president Tayyip Erdogan are taking centre stage as markets try to gauge whether he will change course towards economic orthodoxy or double down on policies widely viewed as unsustainable.
Erdogan is widely expected to use his victory in Sunday’s election to embark on a wide cabinet reshuffle, potentially changing the finance and economy portfolios as well as the central bank leadership, as his rule embarks on a third decade.
Erdogan, re-elected on May 28, has said his new economic team will have “international credibility”. About time, chorus the critics, but will Simsek, a former chief economist at Merrill Lynch, really be on the team? Not long back he said would refrain from “active politics”. And besides, whoever is on his team, Erdogan is wont to do whatever he claims is best, other voices be damned.
Simsek, 56, a former Merrill Lynch strategist, has asked for the autonomy that would allow him to put the country’s finances back on track, the people said. They asked not to be identified citing sensitivity of the matter.
Erdogan’s spokesman Ibrahim Kalin told AHaber TV on Monday that Simsek would “continue to contribute to policies on economy” regardless of whether he became part of a new cabinet. Simsek, who joined Erdogan on the campaign trail earlier in the month, said he wasn’t seeking a return to “active politics.” Erdogan and Simsek met in Ankara on Monday, according to two people familiar with the discussions.
Simsek could possibly reenter active politics, if given autonomy to run the economy without Erdogan meddling. Turkish press claims that in addition to Simsek, former Central Bank governor and the last one who dared to hike rates, Naci Agbal is also contacted to join the economy team.
Will names matter, as long as Erdogan remain unwaveringly committed to his bizarre and unfounded economic theories?
“In an environment with highly centralized decision-making, the market will pay attention to a change in the economy team only if this change signals a decisive turn in policymaking,” said Emre Akcakmak, at asset manager East Capital, which is invested in Turkish stocks.
Economic policy divisions emerged in the days before the Sunday vote, when ruling party members gathered to discuss how they might adopt a new policy of gradual interest rate hikes and a targeted lending program.
“The final decision related to finmin (finance minister) position is likely to provide some strong signals about economic policies in the new term,” said Ercan Erguzel at Barclays, noting there had been efforts to bring back former finance minister Mehmet Simsek, who was well respected by markets.
“If markets see the appointment of Simsek, or a similar orthodox figure soon, expectations for a quick return to orthodoxy would strengthen.”
Others feared scars left by a revolving door at key economic and monetary policy institutions will endure. Those personnel changes occurred as Erdogan sidelined technocrats and hollowed out the institutional capacity of the central bank and ministry of finance.
“Despite the economic challenges faced by Turkey, Erdogan is unlikely to delegate responsibilities and soften his highly personalized style of rule,” said Anthony Skinner, head of research at global advice firm Marlow Global. “He may appoint one or two senior officials who are palatable to the markets, but it is clear who will continue calling the shots.”
The power that Simsek demands is mostly about monetary policy, which has been in line with Erdogan since the new central bank governor took over in March 2021. The gap there may be too big to bridge, the people said.
The ruling AK Party’s outreach to Simsek is already making waves in national media. Pro-government newspaper Sabah said Erdogan was planning to bring back the old guard to run Turkey’s economy. Former Ministers Cevdet Yilmaz and Lutfi Elvan would both take part in the new economic administration under Simsek, according to one of its top political commentators.
If Simsek and possibly Agbal were to return to the management of the economy, Erdogan would be signaling that he senses the approaching economic crisis and is willing to concede to pragmatism instead of crass dogma. However he has made such U-turns in the past when his back was pushed to the corner, only to regress to his inane polices when the economy improved moderately. This, time, EVEN IF—and a big IF- he were to embrace orthodoxy, it would probably be a ploy to win March 2024 local elections. Then, it would business as usual. As Erdogan said, democracy is like a bus. You ride until you arrive at your destination. To him, economy is the metro he rides until Turkey’s creditors give him some respite.
Various press sources, PATurkey staff
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