Pol­i­tics will de­cide Tur­key's cen­tral bank chief

The Pak Banker - - COMPANIES/BOSS -

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 Cen­tre of power. Davu­to­glu, his hand-picked suc­ces­sor, is seek­ing to por­tray an im­age of an in­de­pen­dent pol­i­cy­maker.

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 cen­tralise power in the pres­i­dency through a con­sti­tu­tional change, has crit­i­cised 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 half­way, 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 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. Basci has come un­der re­peated at­tack from Er­do­gan and his sup­port­ers in gov­ern­ment and the press for keep­ing in­ter­est rates too high even as in­fla­tion hov­ers around 9 per cent, al­most twice the of­fi­cial tar­get.

Davu­to­glu's gov­ern­ment and his close cir­cle of ad­vis­ers, by con­trast, is char­ac­terised by ad­vo­cates of fis­cal dis­ci­pline who see curb­ing the surge in prices as a pri­or­ity, us­ing tighter mone­tary pol­icy when nec­es­sary.

Basci, who holds a mas­ter's in eco­nom­ics from Johns Hop­kins Univer­sity and a PhD. from Ankara's Bilkent, was ap­pointed un­der Er­do­gan in 2011. He has worked at the bank since 2003 and helped de­sign the in­ter­est rates cor­ri­dor that al­lows him to fine-tune the cost of lend­ing daily, with­out of­fi­cially chang­ing his bench­mark in­ter­est rate. While Basci could be reap­pointed to an­other five-year term, many peo­ple close to Er­do­gan are lob­by­ing in pri­vate and pub­licly for a change of pro­file. Er­do­gan moved to the pres­i­dency in 2014 af­ter serv­ing as premier for 12 years, dur­ing which his gov­ern­ment was cred­ited for shep­herd­ing Tur­key out of a fi­nan­cial cri­sis and tripling the size of its econ­omy in cur­rent dol­lar terms.

Pres­i­dent Mam­noon Hus­sain in a one to one meet­ing with the Pres­i­dent of Iran Mr. Has­san Rouhani at the Ai­wan-e-Sadr.

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