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Former Economy Czar Rebels But Erdogan Keeps Firm Grip on Party

Former Turkish Economy Czar Babacan Resigns From Erdogan’s Party

(Bloomberg) -- Turkey’s former economy czar Ali Babacan is launching his own political movement in a split with President Recep Tayyip Erdogan that could fire up rebels in the ruling party who are facing an uphill battle against the country’s most powerful leader in decades.

The former heavyweight’s resignation from the AK Party was announced Monday, after Erdogan sacked the governor of the central bank, but no date was set for establishing the new party.

The unprecedented attack on an institution that once lay at the core of Babacan’s remit as the minister in charge of Turkey’s economy shows the deterioration in the rule of law and the economic landscape that triggered his departure, according to a person with direct knowledge of his reasoning.

The break reflects the growing dissent against Turkey’s powerful president within the ruling party since Ahmet Davutoglu, who was once handpicked by Erdogan to take the helm of the AKP, openly declared his rebellion in April. Erdogan’s drive to tighten his grip on key policy areas since he was sworn in with additional powers following last year’s general election is pushing the party’s moderates to the margins.

“Babacan is perhaps the most respected” former minister from the ruling party, Timothy Ash, a strategist at BlueBay Asset Management in London, said in an email. “This is a big blow to Erdogan.”

Babacan’s Potential

Erdogan, who himself rose to power through the splinter party he established in 2001, has played down the rift. When asked about the current rebellion, he said some of those who had left the AKP were “forgotten and became history.”

But Babacan has the potential to make a difference, especially after Erdogan’s governing coalition won less than 50% of the votes in municipal elections earlier this year.

Babacan, 53, presided over the boom times that tripled the size of Turkey’s economy following a financial crisis that tore through the political establishment in 2001. Unlike Erdogan, Babacan is a firm believer in orthodox and liberal economic policies, at least in theory.

Balancing Act

While he refrained from openly attacking Erdogan’s growth-at-all costs policies during his last few years in the cabinet, Babacan has argued in favor of higher savings rates, a smaller current-account deficit and a more moderate credit growth to put the economy on a more sustainable footing.

When Babacan visited Erdogan recently to discuss his departure, Erdogan tried to reverse his former economy czar’s decision by offering him an opportunity to continue to work with the ruling party officials -- an overture that Babacan declined, citing differences that could no longer be bridged, according to the person.

An aide to Erdogan confirmed that Babacan met with the president recently to inform him of his plans to form a new political party but wouldn’t say if Erdogan offered his erstwhile ally any alternatives.

Officials from the presidency weren’t available for comment on Monday.

Other Rebels

Babacan isn’t the only high-profile dissident in the governing party. Davutoglu, a former prime minister, broke with the ruling party in April when he said it “must face the reality of decreasing public support” due to “arrogant” policies. Similarly to Babacan’s circle, Davutoglu considers the current downturn to be a period of crisis that requires a change in the management of the economy.

The criticism of Turkey’s new economic team by Davutoglu and Babacan boils down to the appointment of Berat Albayrak, Erdogan’s son-in-law, as treasury and finance minister, according to two people familiar with the matter. Mismanagement and policy blunders pushed Turkey into a recession, and continuing the current policies will only add to the travails, both camps say.

The Davutoglu and Babacan movements share a distaste for how the economy is managed and both believe that Turkey under Erdogan has seen an erosion of its democratic institutions and the general rule of law. But the alignment of their views on where policy priorities lie is unlikely to make a merger imminent, people from both sides said.

While Davutoglu is expected to officially form his party as early as September, Babacan’s team has yet to set a concrete date.

Regardless of whether the two camps announce a union, they face an uphill battle as Erdogan remains firmly in control of media and state institutions, making it difficult for political challengers to operate and campaign freely.

So far, the president has successfully demonized those who split from his movement and recently warned his voters against “treason” by joining the likes of Babacan or Davutoglu.

--With assistance from Kerim Karakaya.

To contact the reporter on this story: Firat Kozok in Ankara at fkozok@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, ;Onur Ant at oant@bloomberg.net, Paul Abelsky

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