Turkey’s longest-serving leader, President Recep Tayyip Erdogan, has announced a new cabinet headlined by a former London-based banker as treasury and finance minister. Sinan Tavsan report in Nikkei Asia on June 5, 2023.
Mehmet Simsek, who was head of fixed-income strategy and macroeconomic research for the emerging Europe, Middle East and Africa region at Merrill Lynch, advocates for a traditional economic policy. His appointment signals a possible departure from the president’s unorthodox playbook, symbolized by an obsession with lower interest rates.
But with local elections coming next March and Erdogan still deciding how to play to his conservative constituency, there is room for an adjusted form of Erdoganomics to stay.
Simsek began hinting at a return to economic orthodoxy during a handover ceremony on Sunday. Sitting next to his predecessor, Nureddin Nebati, who endorsed Erdogan’s growth-at-all-costs approach, Simsek said, « Turkey has no choice but to return to a rational ground. » He went on to pledge « transparency, consistency, predictability and conformity to international norms. »
Another key cabinet appointment is that of Hakan Fidan, Erdogan’s close confidant and spymaster, as foreign minister. Fidan is expected to continue Turkey’s nuanced diplomacy of being a full-fledged NATO ally of the U.S. while also maintaining a close relationship with Vladimir Putin’s Russia.
During a handover ceremony at the Foreign Ministry Monday, Fidan told reporters, « I will continue to advance a foreign policy vision based on the sovereignty of the people’s will and independence of the state from every kind of influence. »
Close to 100 high-level foreign guests from 81 countries attended the president’s inauguration ceremony, where the president added another five year-term to his two decades in power. They included many heads of state, government and alliances: NATO Secretary-General Jens Stoltenberg, Hungarian Prime Minister Viktor Orban, Venezuelan President Nicolas Maduro, Pakistani Prime Minister Shehbaz Sharif, South African President Cyril Ramaphosa.
Guests were welcomed with a live orchestra playing Mozart’s « Turkish March, » with ceremonial guards wearing historic uniforms and weapons representing 16 Turkic Empires and states from the past, starting with the Great Hun Empire in the third century B.C.E. to the Ottoman Empire, Turkey’s predecessor, which lasted until 1922.
On the night of his electoral victory on May 28, Erdogan acknowledged that high inflation was the most pressing issue the country faces and said he is designing an economic team « with international credibility. » Yet the same night, he sent mixed signals to markets by sticking to his economic guns: that inflation will fall as interest rates drop.
By also appointing Cevdet Yilmaz, another well-regarded former minister, as vice president, Erdogan is reinforcing expectations that he and Simsek will work in tandem to address the country’s dire economic situation.
Turkey’s woes were compounded by devastating earthquakes in February that are expected to cost the country $100 billion, about 9% of its gross domestic product, according to government estimates.
At the ceremony on Sunday, Simsek said Turkey will prioritize « macro financial stability and strengthening institutional quality and capacity, at a conjecture where global challenges and geopolitical tensions are increasing. »
He said his targets will be securing price stability for sustainable high growth and establishing fiscal discipline.
With Simsek’s arrival, analysts are now anticipating the appointment of a central bank governor who might reverse policy and start raising interest rates. Sahap Kavcioglu, the current governor, has been cutting rates under pressure from Erdogan and despite runaway inflation.
Kavcioglu is the fourth central bank governor since Turkey moved to an all-powerful presidential system in 2018. He replaced Gov. Naci Agbal, who was sacked by Erdogan after hiking rates in 2021. Agbal had been governor for four months.
There have been reports that suggest Simsek has proposed Hafize Gaye Erkan, a former Goldman Sachs banker who holds a doctorate in financial engineering from Princeton University, to replace Kavcioglu.
She has reportedly arrived Turkey and will soon meet with Erdogan.
Piotr Matys, senior market analyst at In Touch Capital Markets, told Nikkei Asia, « For at least some foreign investors, the appointment of Simsek as finance minister is a ray of hope that the most unorthodox policies will be at least partially reversed. That said, based on their past experience, many market participants will be skeptical that any changes will prove sustainable. »
Simsek will face difficulties, analysts say. One is political: Turkey will hold local elections next March, and Erdogan, after suffering defeats in 2019, desires to take back large cities like Istanbul and Ankara.
As for foreign policy, Erdogan picked Fidan, the former head of the National Intelligence Organization, as his top diplomat. Fidan is widely regarded as one of Erdogan’s closest confidants. He is actively involved in difficult foreign policy issues, including those dealing with Syria, Libya, Russia and Egypt.
Erdogan told his guests at the hall of the 1,100-room presidential palace in Ankara that Turkey will not turn « inward and watch events from the sidelines but will further expand the sphere of influence of our entrepreneurial and humanitarian diplomacy. »
With a fresh mandate for five more years, Erdogan’s foreign policy is expected to become more ambitious. The next century is the « Century of Turkey, » Erdogan repeated in his campaign.
The president said the country will have a « stronger hand in defending Turkey’s interests, » and that the international community will see a Turkey that takes more initiatives in solving global crises and strives for the establishment of peace and stability in its region. He added that Turkey will work harder for the development of the Turkish and Islamic world, and « protect the oppressed more. »
Ali Bakir, a nonresident senior fellow at the Atlantic Council, said, « Turkey will prioritize its own interests and bolster its strategic autonomy and independent foreign policy, as well as its forward defense policy. »
Galip Dalay, an associate fellow at the Chatham House think tank, said, « We will be seeing more or less, more of the same, » in terms of foreign policy, with Turkey cooperating with the West where interests converge, and not allowing disputes influence topics the two sides agree on.
Dalay, also a nonresident senior fellow at the Middle East Council on Global Affairs, says Turkey’s relations with the West face two key challenges, the first being Sweden’s accession to NATO, a move Turkey’s parliament has not ratified. Next, Dalay said, is Turkey’s approach toward Russia and China.
Dalay said that the potential purchase of another sophisticated defense item from Russia, in addition to the S-400 missile defense system Ankara bought in 2017, as well as engaging with China on sensitive technologies, « will put a lot of pressure on Turkey-West relations going forward. »
On Sunday, NATO head Stoltenberg met with Erdogan and his new key ministers including Fidan in Istanbul, trying to convince Turkey to ratify Sweden’s accession into the military bloc before the NATO summit in Vilnius, Lithuania in July.
Turkey has held out from ratifying Sweden’s entry into NATO as Erdogan believes Stockholm is not cracking down on groups Turkey deems to be terrorist organizations.
Mehmet Fatih Ceylan, head of the think tank Ankara Policy Center in Ankara, said, « There has been a visible anti-Western, anti-European, anti-American and even anti-NATO sentiment in Turkey among ordinary citizens across the board, and I will say this has been used or abused as political capital or to consolidate grassroots supporters. »
Ceylan, Turkey’s former ambassador to NATO, said while Erdogan’s tough rhetoric toward the West might continue until the local elections, the bad economy may convince the president to change tactics.
« Does it make economic sense to continue opposing the West and using anti-Western rhetoric, now that elections are over? » he asked.
« My belief, » he said, « is that Turkey will take a step to finalize Swedish membership before the Vilnius Summit. »