Islamic Finance 

Erdogan starts presidential rule, names son-in-law Turkish finance minister

| 10 July, 2018
 David Dolan, Daren Butler

JULY 10, 2018 | 12:36PM EDT | ISTANBUL

Turkey’s Tayyip Erdogan ushered in the new, executive presidential system he had long campaigned for by putting his son-in-law in charge of the economy and promising a greater overhaul of a country he has dominated for 15 years.

Hours after he was sworn in with sweeping new powers at a ceremony in the capital of Ankara late on Monday, Erdogan named Berat Albayrak as treasury and finance minister. Albayrak, 40, previously served as energy minister and, before that, led a company seen as close to the government.

His appointment - and the absence of familiar, market-friendly ministers from the cabinet - has helped send the lira sharply lower. Erdogan has said the powerful executive presidency is vital to drive economic growth and to ensure security after a failed 2016 military coup.

Western allies and rights group decry what they say is increasing authoritarianism and a push toward one-man rule. Investors have been worried by what they fear is Erdogan’s tightening grip on monetary policy.

“Albayrak becoming the finance minister is not a good sign especially because of his close relationship with President Erdogan. It is a sign that Erdogan will control economic policy even more,” said Guillaume Tresca, a senior emerging markets strategist at Credit Agricole.

“The independence of the central bank could be undermined.”

A self-described “enemy of interest rates”, Erdogan wants to see lower borrowing costs to spur growth. Investors, who have warned that the credit-fueled economy is overheating, want to see decisive interest rate increases to tame double-digit inflation.

Turkish President Tayyip Erdogan's son-in-law and newly appointed Treasury and Finance Minister Berat Albayrak (L) and Interior Minister Suleyman Soylu stand next to each other during a presser at the Presidential Palace in Ankara, Turkey July 9, 2018. REUTERS/Umit Bektas

Speaking during a handover ceremony in Ankara, Albayrak pledged to work hard to bring inflation down to single digits and also to ensure a sustainable and healthy growth.

“We are facing a period where we have to work hard to bring inflation down to single digits again,” Albayrak said adding that Turkey will have a stronger monetary policy in the upcoming period.

Under the new system, the post of prime minister has been scrapped and the president selects his own cabinet, regulates ministries and can remove civil servants - all without parliamentary approval.

Likewise, the departure of market-friendly ministers such as Mehmet Simsek, the well regarded former deputy prime minister, and Naci Agbal, previously the finance minister, has also undermined confidence.

“Nothing can be regarded as positive on this one,” said Edwin Gutierrez, the head of emerging markets sovereign debt at Aberdeen Standard Investments. “Obviously it is going to be a step down in capacity compared to Simsek.”

TRANSFORMING TURKEY

Erdogan, the most popular and divisive leader in recent Turkish history, has now formally become the most powerful leader since Mustafa Kemal Ataturk founded the republic from the ruins of the Ottoman Empire.

Just as Ataturk transformed an impoverished nation at the eastern edge of Europe into a secular, Western-facing republic, Erdogan has fought to bring Islamic values back into public life and lift millions of pious Turks - long ostracized by the secular elite - out of poverty.

“We are leaving behind the system that has in the past cost our country a heavy price in political and economic chaos,” Erdogan said in an address late on Monday.

In the aftermath of the 2016 coup, Turkey, a member of the NATO military alliance and still nominally a candidate to join the European Union, has detained some 160,000 people, jailed journalists and shut down dozens of media outlets.

The government says its measures are necessary given the security situation.

In one of three presidential decrees issued in the government’s Official Gazette on Tuesday, it was announced that the president would appoint the central bank governor, deputies and monetary policy committee members for a 4-year period.

It was also announced in the Official Gazette that Erdogan had appointed ground forces commander General Yasar Guler as the new chief of the general staff, replacing General Hulusi Akar, who was appointed defense minister in the new government.

(Additional reporting by Ezgi Erkoyun in Istanbul and Marc Jones in London, Editing by Darren Schuettler, William Maclean)

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