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The departure of the Finance Minister reinforces Erdogan’s grip on the Turkish economy

After Recep Tayyip Erdogan began strongly defending his pursuit of low interest rates in a speech to parliamentarians of Turkey’s ruling party two weeks ago, he received a standing ovation from all present. – except for one person.

His finance minister, Lutfi Elvan, who had expressed his growing displeasure at the president’s unconventional view of the economy, clasped his hands in his lap as those around him clapped.

Elvan resigns on Wednesday night, in the midst of a currency crisis, came as little surprise after weeks of rumors that he was on his way out.

But analysts say replacing him with an Erdogan loyalist closely linked to the president’s son-in-law, former finance minister Berat Albayrak, underscores the extent of control over the economy worth $795 billion dollars of the country is now in the hands of one person.

Turgut Kisinbay, an economist at Invesco, chief asset officer, said: “Erdogan is now completely in charge. “In the past, Erdogan has delegated economic policy to ministers, central banks, institutions and, ultimately, his son-in-law. In the end, I think it’s just him now.”

Elvan, an official turned politician, was welcomed by the Turkish business community when he replaced Albayrak as finance minister at the end of 2020. His predecessor’s term of office, was determined by a decision. The decision to spend tens of billions of dong in foreign currency reserves in an ultimately futile attempt to protect the lira, drew strong criticism from Turkish opposition parties and foreign investors.

Although detractors accuse Elvan of a lack of backbone, business executives and government officials say he has privately advocated for fiscal discipline. He also makes the case for a more orthodox monetary policy even as Erdogan, a staunch opponent of high interest rates, has pushed the central bank to consistently lower borrowing costs despite soaring inflation. nearly 20% annually.

In contrast, his successor, Nureddin Nebati, last week posted a 12-part Twitter piece defending Erdogan’s determination to cut interest rates despite warnings that it could lead to soaring inflation and financial instability. main. The lira fell as much as 4% after his appointment.

As he took the oath of office on Thursday, Nebati echoed the president’s story by declaring that Turkey was embarking on a mission to achieve economic independence. “Our priority will be investment and jobs, not high interest rates,” he said.

Emre Peker, an analyst at consulting firm Eurasia Group, said the administration would now be “clearly aligned” behind the president’s economic policy, which would “prioritize investment and boosted exports”. because a lower exchange rate stabilizes prices, despite the cost of a weak lira”.

Nebati, from a family of landowners in the southeastern province of Urfa, together with his brothers established his own company that imports clothing as well as manufactures garments for export.

He is known to be a conservative and is a member of several religious organizations affiliated with Erdogan’s Justice and Development party (AKP). In 2013, he proposed shutting down Turkey’s 56 state-run brothels, a proposal rejected by the ruling party.

A Turkish businessman who knows him well described Nebati as having a “kind heart” and “dedication” to the AKP and Erdogan.

Nebati’s perceived connection to Albayrak, who is married to Esra, Erdogan’s daughter and who was once seen as a possible successor to the presidency, has sparked new speculation that the house’s son-in-law Leaders continue to wield influence behind the scenes.

Several others with ties to Albayrak have been promoted to senior economic positions this year. They include Erisah Arican, his former thesis supervisor who was appointed head of the country’s wealth fund, Sahap Kavcioglu, governor of the central bank, and Mehmet Mus, minister of commerce.

A senior Turkish banker said Nebati’s appointment, which comes just hours after the central bank resumed Albayrak’s controversial monetary intervention, could lead to a return “a more stringent safeguard” lira that could reverse the recent improvement in the country’s foreign currency reserves.

Others suggest Nebati will use publicly owned banks as a tool to try and soften the impact of rapidly rising inflation and falling living standards by ramping up cheap lending to households. and businesses.

“The new minister is more likely to use the balance sheets of state banks to protect the Turkish lira,” said Okan Akin, credit analyst at AllianceBerntein, an asset manager. and strong credit growth”.

“However, as the profits of the state-owned banks are still being affected by the same policy in 2020 during Minister Albayrak’s term, he will need to inject capital into the state banks first.”

Others argue that seizing the finance ministry at a time when the only voice that matters most is that of Erdogan.

“Whoever holds the position is no longer relevant,” said Maya Senussi, senior economist at Oxford Economics, a consulting firm. “They can do little to influence policy.”

Additional reporting by Funja Guler in Ankara

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