Erdogan Expands Clout Over Central Bank, as He Promised
(Bloomberg) -- Turkey’s President Recep Tayyip Erdogan moved to cement his control over the economy, claiming the exclusive power to appoint central bank rate-setters a day after naming his son-in-law to oversee economic policy.
The moves complete a years-long process that saw members of his investor-friendly A-team removed from the government one-by-one, increasingly rattling markets. The lira plunged on Monday by the most since a failed coup attempt two years ago and is down by 19 percent against the dollar so far this year.
“I’d have expected Erdogan to have learned the bitter cost of messing with markets,” Atilla Yesilada, economist at GlobalSource Partners in Istanbul, said in an emailed report. “Apparently, he does think that with his new powers he can best the markets.”
Erdogan was sworn in Monday for a five-year term as president with enhanced powers after winning re-election under an amended constitution, setting the stage for him to follow through on a pre-vote promise to take more direct control over monetary policy. The 64-year-old leader has repeatedly clashed with the central bank over borrowing costs that he is determined to keep low under almost all circumstances.
He formalized his increased powers over top appointments at the bank with a decree on Tuesday. Turkey’s largest business association, Tusiad, which has been urging the government to respect the rule of law and independence of institutions, cautioned that central bank autonomy “is very important for a strong Turkish economy.”
It isn’t clear how the central bank will respond to price gains running more than triple the official target at its next monetary policy meeting on July 24.
“Key is independence from influence and ability to do what is needed. Given the tough decisions needed to be taken, with the new cabinet and changes with decrees, that ability may have been impaired, especially on increasing interest rates to control inflation,” according to Michel Danechi, a portfolio manager at Vedra Partners Limited in London.
The decree, one of the first three after Turkey officially shifted its governance system to an executive presidency, was published in the Official Gazette. It didn’t include any reference to other members of the cabinet in appointing the central bank chief, who used to be named jointly by the president, prime minister and a deputy prime minister in a decree signed off by the entire cabinet.
The order followed his appointment of Berat Albayrak, a son-in-law and former energy minister who entered parliament for the first time in 2015, to run a new ministry of treasury and finance, combining what used to be the two most powerful economic jobs. He’ll replace Mehmet Simsek, a former Merrill Lynch executive and the last man standing from a group of politicians who’ve been trusted by investors over the years to rein in the president’s go-for-growth instincts and keep Turkey’s $880 billion economy on a sustainable path.
There was no job for Simsek in the downsized cabinet of 16 ministries.
“From now on, budget and fiscal discipline will be maintained in a better way,” Albayrak said as he took office on Tuesday.
The lira erased its earlier gains after the report and was trading 0.9 percent higher at 4.6910 per dollar at 4:33 p.m. in Istanbul. The currency depreciated more than 3 percent after Albayrak’s appointment on Monday.
The currency’s slide is not good news for Turkey’s indebted corporations, which have borrowed heavily in hard currency and now face ballooning foreign-exchange liabilities. The difference between the corporate sector’s foreign liabilities and assets is at near record $221 billion as of end April.
For more on the cabinet, read: Erdogan Stokes Investor Unease With Son-in-Law as Economy Czar
Erdogan named Fuat Oktay, formerly a senior official at the prime minister’s office, as his vice president and kept Mevlut Cavusoglu in place as foreign minister. Hulusi Akar, the chief of staff who was held hostage during the night of the coup attempt against Erdogan, was named as defense minister. Mustafa Varank, an Erdogan aide, will be in charge of industry and technology.
During the snap election campaign, Erdogan told Turks that the new presidential system would ensure stability in turbulent times at home and abroad.
After the unsuccessful putsch, authorities began a sweeping purge of the civil service, judiciary, security forces and education system, arguing that supporters of the coup attempt were being rooted out. Thousands more officials were fired from government jobs on Sunday, bringing the total to about 130,000. Turkey has also become more deeply embroiled in the civil war in neighboring Syria, as Erdogan sent his army into the country’s northwest to fight Kurdish militants.
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