Mehmet Simsek was added to President Tayyip Erdogan’s cabinet on Saturday, sending a message that the newly-elected Turkish administration will revert to more conventional economic policies in order to address the country’s cost-of-living crises and other issues.
According to observers, Simsek’s selection as treasury and finance minister may pave the way for interest rate increases in the upcoming months, reversing Erdogan’s long-standing practise of cutting rates amid skyrocketing inflation.
Erdogan, 69, who has been in power for more than 20 years, won a runoff election last weekend and started his new five-year term by urging Turks to put aside their differences and concentrate on the future.
In addition, Mevlut Cavusoglu’s replacement as foreign minister is Hakan Fidan, the former head of the National Intelligence Organisation (MIT), and Cevdet Yilmaz, another traditional economic manager.
Among the guests and high-ranking officials who attended Erdogan’s inauguration ceremony in Ankara’s presidential palace were NATO Secretary-General Jens Stoltenberg, Venezuelan President Nicolas Maduro, and others.
The apparent economic U-turn occurs at a time when many analysts predict that the major developing market would experience upheaval due to low foreign reserves, an increasing state-backed protected deposits programme, and unbridled inflation expectations.
When Simsek, 56, was deputy prime minister and finance minister from 2009 to 2018, the financial markets held him in high respect.
Reuters reported earlier this week Erdogan was almost certain to put him in charge of the economy, marking a partial return to more free-market policies after years of increasing state control of forex, credit and debt markets.
Question of independence
Analysts said that after past episodes in which Erdogan pivoted to orthodoxy only to quickly return to his rate-cutting ways, much would depend on how much independence Simsek is granted.
“This suggests Erdogan has recognised the eroding trust in his ability to manage Turkey’s economic challenges. But while Simsek’s appointment is likely to delay a crisis, it is unlikely to present long-term fixes to the economy,” said Emre Peker, a director at Eurasia Group covering Turkey.
“Simsek will likely have a strong mandate early in his tenure, but face rapidly increasing political headwinds to implement policies as March 2024 local elections draw near.”
Erdogan’s economic programme since 2021 stresses monetary stimulus and targeted credit to boost economic growth, exports and investments, pressing the central bank into action and badly eroding its independence.
As a result, annual inflation hit a 24-year peak beyond 85 per cent last year before easing.
The lira has lost more than 90 per cent of his value in the last decade after a series of crashes, the worst in late 2021. It hit new all-time lows beyond 20 to the dollar after the May 28 vote.
‘Ways to reconcile’
Turkey’s longest-serving leader, Erdogan won 52.2 per cent support in the runoff, defying polls that predicted economic strains would lead to his defeat.
His new mandate will allow Erdogan to pursue the increasingly authoritarian policies that have polarised the country, a NATO member, but strengthened its position as a regional military power.
At the inauguration ceremony, attended by Hungarian Prime Minister Viktor Orban and Armenian Prime Minister Nikol Pashinyan, Erdogan struck a conciliatory tone.
“We will embrace all 85 million people regardless of their political views … Let’s put aside the resentment of the election period. Let’s look for ways to reconcile,” he said.
“Together, we must look ahead, focus on the future, and try to say new things. We should try to build the future by learning from the mistakes of the past.”
Earlier, reading out the oath of office, Erdogan vowed to protect Turkey’s independence and integrity, to abide by the constitution, and to follow the principles of Mustafa Kemal Ataturk, founder of the modern secular republic.
Erdogan became prime minister in 2003 after his AK Party won an election in late 2002 following Turkey’s worst economic crisis since the 1970s.
In 2014, he became the country’s first popularly elected president and was elected again in 2018 after securing new executive powers for the presidency in a 2017 referendum.
The May 14 presidential election and May 28 runoff were pivotal given that the opposition had been confident of ousting Erdogan and reversing many of his policies, including proposing sharp interest rate hikes to counter inflation, running at 44 per cent in April.
In his post-election victory speech, Erdogan said inflation was Turkey’s most urgent issue.
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