Erdogan signals economic U-turn in picking orthodox Simsek

Reuters:  President Tayyip Erdogan signalled on Saturday his newly-elected government would return to more orthodox economic policies when he named Mehmet Simsek to his cabinet to tackle Turkey's cost-of-living crisis and other strains.

Turkish President Tayyip Erdogan takes oath after his election win at the parliament in Ankara© Thomson Reuters

Simsek's appointment as treasury and finance minister could set the stage for interest rate hikes in coming months, analysts said - a marked turnaround from Erdogan's longstanding policy of slashing rates despite soaring inflation.

After winning a runoff election last weekend, Erdogan, 69, who has ruled for more than two decades, began his new five-year term by calling on Turks to set aside differences and focus on the future.

Turkey's new cabinet also includes Cevdet Yilmaz, another orthodox economic manager, as vice president, and the former head of the National Intelligence Organisation (MIT) Hakan Fidan as foreign minister, replacing Mevlut Cavusoglu.

Inauguration ceremony of Turkish President Erdogan in Ankara© Thomson Reuters

Erdogan's inauguration ceremony at Ankara's presidential palace was attended by NATO Secretary-General Jens Stoltenberg, Venezuelan President Nicolas Maduro and other dignitaries and high-level officials.

Turkish President Tayyip Erdogan visits the mausoleum of Mustafa Kemal Ataturk in Ankara© Thomson Reuters

The apparent U-turn on the economy comes as many analysts say the big emerging market is heading for turmoil given depleted foreign reserves, an expanding state-backed protected deposits 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 Erdogan was almost certain to put him in charge of the economy, marking a partial return to more free-market policies after years of increasing state control of forex, credit and debt markets.

QUESTION OF INDEPENDENCE

Analysts said that after past episodes in which Erdogan pivoted to orthodoxy only to quickly return to his rate-cutting ways, much would depend on how much independence Simsek is granted.

"This suggests Erdogan has recognised the eroding trust in his ability to manage Turkey’s economic challenges. But while Simsek’s appointment is likely to delay a crisis, it is unlikely to present long-term fixes to the economy," said Emre Peker, a director at Eurasia Group covering Turkey.

Turkish President Tayyip Erdogan announces new cabinet during a press conference, in Ankara© Thomson Reuters

"Simsek will likely have a strong mandate early in his tenure, but face rapidly increasing political headwinds to implement policies as March 2024 local elections draw near."