2023-06-04 16:31:53
Dhe Turkish President Recep Tayyip Erdogan is beginning his new term of office with new appointments to leading positions in his country’s economic and financial policy, which amounts to a radical change in the direction of previous politics. At the weekend, he reappointed his former companion Mehmet Simsek, who was known for classic economic and financial policies, as Finance and Economics Minister after dismissing him in 2018.
Simsek announced that Turkey would return to “rational basics” in economic and financial policy because it had no other choice. “A rule-based, predictable Turkish economy will be the key to achieving the desired prosperity.” Central goals are budgetary discipline and price stability in order to achieve sustainable and high growth. “Transparency, consistency, predictability and compliance with international standards will be our founding principles.”
Dramatic depreciation of the lira
This is consistent with the policies that Simsek followed from 2009 until his dismissal in 2018, which were endorsed by investors around the world. But it also stands for the opposite of the policy that has been pursued since then at Erdogan’s behest: key interest rate cuts without regard to inflation, which shot up to 85 percent last year, and an expansion of cheap credit to promote economic growth and boost demand. The independence of the central bank was at best on paper.
This resulted in a dramatic fall in the value of the lira and a historically large deficit in the country’s current account. Financial aid from the Gulf States and Russia had to be accepted to finance it, as Erdogan admitted after the election.
During the election campaign, Simsek was still shy
The appointment of Simsek, who had worked as a banker at Merrill Lynch, among others, was last expected after many tips from Erdogan’s seat of government, even if he was still hesitant to join Erdogan’s team during the election campaign.
However, this had not yet been reflected in the lira exchange rate, an early barometer of the assessment of the international markets. At 20.96 lira per dollar, another negative record was only set on Friday. Analysts and bank representatives had recently shown restraint. One must first wait and see how many freedoms Simsek actually gets. Even after the election, Erdogan said he would continue his policy of low interest rates.
The fact that the previous head of the central bank, Sahap Kavcioglu, who had implemented Erdogan’s interest rate cut policy despite high inflation, is said to fit in with the presumed policy swing. Hafize Gaye Erkan is mentioned as a potential successor on social media.
The banker has had a long career in international finance and is currently on the board of directors of American insurance broker Marsh McLennan. She would be the first woman to head Turkey’s central bank.
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