Investors see cause for worry in Turkey’s divided economy team
The Turkish government’s eleventh-hour rescheduling of a meeting of its economic team to include the president last month was another stark reminder for investors: when it comes to policy, Tayyip Erdogan likes to call the shots. Erdogan’s drive for lower interest rates has rattled financial markets and, along with alarm about the crackdown after the July coup and a stronger dollar, contributed to the lira currency losing a fifth of its value this year.
Officials say this has widened a rift in the economic team between reformists who want more to be done to appease international investors — such as Deputy Prime Minister Mehmet Simsek and Finance Minister Naci Agbal - and populists such as Deputy Prime Minister Nurettin Canikli and Economy Minister Nihat Zeybekci. Adding to the confusion is the central bank, which raised rates for the first time in nearly three years last month, despite Erdogan’s appeals. “There isn’t complete harmony among the economic leadership.
On one side, there are those who are attuned to the needs of the global economy and act as anchors for the markets. On the other, there are those who want more national economic policies,” a senior official from the ruling AK Party said.
“It seems Simsek and Agbal are anchors in the eyes of the markets, and they are crucial for the Turkish economy to be understood internationally.”
The party has relied on the economy’s strong growth as the pillar of its success. Divisions among its top ranks could not come at a more inopportune time, both for Turkey’s economic stability, and the party itself, as slowing growth and stubborn inflation risk undermine its achievements in the eyes of voters.
Officials at Simsek and Agbal’s offices were not immediately available for comment.
“The policy setting is not transparent,” said Dan Raghoonundon, an emerging markets portfolio manager at Janus Capital.”It’s very hard to know who is in charge and when markets don’t have transparency or visibility they tend to assume the worst.”
When Prime Minister Binali Yildirim, an Erdogan stalwart who is generally seen as being aligned with the populists, last month abruptly rescheduled a meeting of the Economic Coordination Committee (EKK), sources in his office cited a scheduling conflict.
However, some analysts saw the last-minute change as a move by Erdogan to stamp his authority on a meeting where weakness in the lira was due to be discussed.