Tur­key's Pres­i­dent at log­ger head with PM over new Cen­tral Bank Chief

The Pak Banker - - FRONT PAGE -

Turk­ish Pres­i­dent Re­cep Tayyip Er­do­gan is at log­ger­heads with his premier over who should be the next cen­tral bank gover­nor as the Turk­ish pres­i­dent pushes for a can­di­date amenable to cutting rates, ac­cord­ing to peo­ple familiar with the mat­ter.

Less than a month be­fore the term of cen­tral bank Gover­nor Er­dem Basci ex­pires, Prime Min­is­ter Ah­met Davu­to­glu and his deputy, Mehmet Sim­sek, want a gover­nor who can win in­vestor con­fi­dence with ortho­dox mone­tary pol­icy. Er­do­gan and his al­lies are seek­ing some­one who shares their view that Tur­key needs lower bor­row­ing costs to curb in­fla­tion, fuel in­vest­ment and boost growth, the peo­ple said, speak­ing on con­di­tion of anonymity to dis­cuss pri­vate de­bates. The two lead­ers must each sign off on a can­di­date.

The stale­mate is part of a big­ger power play be­tween Tur­key's top two lead­ers. Er­do­gan, who served as prime min­is­ter for 12 years un­til 2014, has trans­formed the typ­i­cally cer­e­mo­nial role of the pres­i­dent to a new cen­ter of power. Davu­to­glu, his hand­picked suc­ces­sor, is seek­ing to por­tray an im­age of an in­de­pen­dent pol­icy maker. The emerg­ing divi­sion is be­ing in­creas­ingly felt among high-level de­ci­sion mak­ers, the peo­ple said. Many of them said the cur­rent split is un­sus­tain­able. Er­do­gan, who's kick­ing off his cam­paign to cen­tral­ize power in the pres­i­dency through a con­sti­tu­tional change, has crit­i­cized the in­ef­fi­cien­cies of what he calls a "two-headed sys­tem," with pow­ers now un­cer­tainly di­vided be­tween the premier­ship and the pres­i­dency.

Davu­to­glu has yet to sub­mit a can­di­date for the cen­tral banker job, one of the peo­ple said. He plans to meet Er­do­gan half-way, choos­ing some­one that the pres­i­dent won't view as a staunch sup­porter of ortho­dox eco­nomic poli­cies, the per­son said. That's likely to leave Tur­key with a can­di­date that nei­ther side is truly happy with, he said.

Bar­ring the emer­gence of an out­side can­di­date, Davu­to­glu and Sim­sek may pro­pose Mu­rat Cetinkaya or Ah­met Faruk Aysan, two mem­bers of the bank's rate-set­ting com­mit­tee, one of them said. Both were ap­pointed to their cur­rent po­si­tions while Er­do­gan was prime min­is­ter. "We gen­er­ally see that dis­agree­ments be­tween the gov­ern­ment and Er­do­gan don't last very long and of­ten end with a so­lu­tion where Er­do­gan's de­ci­sions out­weigh the oth­ers," said Inan Demir, chief econ­o­mist at Fi­nans­bank AS in Is­tan­bul. "With ap­point­ment of the new gover­nor, pres­sure to lower rates with­out con­di­tions that merit such a cut may emerge."

Spokes­men for the pres­i­dent and prime min­is­ter didn't im­me­di­ately re­spond to re­quests for com­ment. This story is based on in­ter­views with se­nior of­fi­cials close to both camps, in­clud­ing peo­ple in­volved in de­lib­er­a­tions over the cen­tral bank gover­nor, over a pe­riod of three weeks. Tur­key's re­liance on for­eign-cur­rency in­flows to plug its cur­rent-ac­count gap makes the di­rec­tion of mone­tary pol­icy cru­cial for in­vestors.

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