© Reuters. From file: Turkish President Recep Tayyip Erdogan greets supporters following early polling results for the second round of the presidential election in Istanbul, Turkey on May 28, 2023. Murat Setimohurdar/Presidential Press Office/Reported via Reuters
Written by Hussein Hayatsever and Ezgi Erkoyun
ANKARA (Reuters) – President Recep Tayyip Erdogan hinted on Saturday that his newly elected government would return to more traditional economic policies when he appointed Mehmet Simsek to his cabinet to tackle Turkey’s cost of living crisis and other tensions.
Analysts said Simsek’s appointment as treasury and finance minister could pave the way for interest rate hikes in the coming months – a marked shift in Erdogan’s longstanding policy of lowering interest rates despite rising inflation.
After winning a run-off election last weekend, Erdogan, 69, who has ruled for more than two decades, began his new five-year term by calling on Turks to put aside differences and focus on the future.
The new Turkish government also includes Cevdet Yilmaz, another Orthodox economic director, as vice president, and former head of the National Intelligence Service (MIT) Hakan Fidan as foreign minister, succeeding Mevlut Çavuşoğlu.
Erdogan’s inauguration ceremony at the presidential palace in Ankara was attended by NATO Secretary General Jens Stoltenberg, Venezuelan President Nicolas Maduro, dignitaries and high-ranking officials.
The apparent turnaround in the economy comes as many analysts say the large emerging market is heading for turmoil given the depletion of foreign reserves, the expansion of the state-backed protected deposit scheme, and unchecked inflation expectations.
Simsek, 56, was highly regarded by financial markets when he served as finance minister and deputy prime minister between 2009 and 2018.
Reuters reported earlier this week that Erdogan was almost certain to put him in charge of the economy, marking a partial return to free-market policies after years of increasing state control over foreign exchange, credit and debt markets.
question of independence
Analysts said that after previous episodes in which Erdogan turned to dogma only to quickly return to his price-cutting ways, much would depend on how much independence Şimşek is given.
Said Emre Peker, director at Eurasia Group Company covering Türkiye.
“Simsk will likely enjoy a strong mandate early in his term, but faces rapidly growing political headwinds to implement policies as local elections approach in March 2024.”
Erdoğan’s economic program since 2021 has been emphasizing targeted monetary and credit stimulus to boost economic growth, exports and investments, putting pressure on the central bank to act and badly undermining its independence.
As a result, annual inflation reached a 24-year high of over 85% last year before easing.
The lira has lost more than 90% of its value in the past decade after a series of crashes, the worst in late 2021. New all-time lows of over 20 liras to the dollar were recorded after the May 28 vote.
“Methods of Recovery”
Erdogan, Turkey’s longest-serving leader, won 52.2% support in the runoff, defying opinion polls that predicted economic pressures would lead to his defeat.
His new mandate would allow Erdogan to pursue increasingly authoritarian policies that have polarized the country, a NATO member, but cemented its position as a regional military power.
At the inauguration ceremony, which was attended by Hungarian Prime Minister Viktor Orban and Armenian Prime Minister Nikol Pashinyan, Erdogan struck a conciliatory tone.
“We will embrace the 85 million people regardless of their political views… Let’s put aside the resentment of the election period. Let’s look for ways to reconcile,” he said.
“Together, we should look ahead, focus on the future, and try to say new things. We should try to build the future by learning from the mistakes of the past.”
Earlier, Erdogan, while taking the constitutional oath, vowed to protect Turkey’s independence and integrity, abide by the constitution, and follow the principles of Mustafa Kemal Ataturk, the founder of the modern secular republic.
Erdogan became prime minister in 2003 after his Justice and Development Party won elections in late 2002 after Turkey’s worst economic crisis since the 1970s.
In 2014, he became the country’s first popularly elected president and was elected again in 2018 after securing new executive powers for the presidency in a 2017 referendum.
The presidential election on May 14 and the run-off on May 28 were pivotal given that the opposition was confident of ousting Erdogan and reversing many of his policies, including proposing sharp increases in interest rates to counter inflation, which hit 44% in April.
In his victory speech after the election, Erdogan said that inflation is the most pressing issue in Turkey.
(Additional writing and reporting by Jonathan Spicer; Editing by Frances Kerry, Giles Elgood, and Christina Fincher)
