Turkey’s new finance chief vows to bring inflation down

S&P Global watching Turkey closely after Erdogan power play

ANKARA, July 10, (Agencies): Turkey’s incoming finance minister, the son-in-law of President Recep Tayyip Erdogan, on Tuesday vowed to bring inflation down to single digits as he seeks to win over investors spooked by his appointment.

Berat Albayrak, the husband of Erdogan’s elder daughter Esra, was on Monday named by the president as treasury and finance minister as part of a cabinet reshuffle for his new term.

Albayrak’s surprise switch from the energy ministry spooked financial markets, who were also unhappy to see there was no room for outgoing deputy prime minister Mehmet Simsek, the government’s pointman on the economy.

“In the coming period we will work intensively to bring inflation down to single digits,” Albayrak said at a handover ceremony with Simsek, whose post no longer exists in the new government.

Inflation in Turkey surged to over 15 percent in June for the first time in almost one-and-a-half decades, raising new fears that the economy is overheating.

Albayrak promised a “more successful performance” in the coming period based on “independent institutions”.

Erdogan has repeatedly called on the central bank, nominally independent, to cut interest rates, raising concerns over its credibility.

Albayrak, 40, vowed that Turkey would set “an example for the world” in financial and budgetary discipline and also vowed “a vigorous and energetic monetary policy”, without giving further details.

“Turkey will write a new story,” he promised.

The lira had on Monday lost over 3.5 percent in value against the dollar after Albayrak’s appointment, with markets also rattled by changes to the president’s relationship with the central bank under the new system that dispenses with the office of prime minister.

Presidential decrees said the central bank governor would no longer have the power to appoint his deputies while Erdogan would now directly name the governor with no need to act in tandem with the government.

The lira on Tuesday gained back 0.5 percent against the dollar to trade at 4.7 to the greenback.

“The pace at which he (Erdogan) is moving to tighten his grip is alarming and, in response, Turkish financial assets have come under pressure,” said Jason Tuvey, senior emerging markets economist at Capital Economics, in a note to clients.

Simsek, a former Merill Lynch economist who had spent much of the last year trying to reassure markets after sometimes provocative comments by Erdogan, appeared to show no bitterness over his departure.

“People are temporary, the main thing is service to our dear nation,” he wrote on Twitter. “Goodbye to you all.”

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LONDON: S&P Global is watching Turkey closely, the rating agency said on Tuesday, and it warned that President Tayyip Erdogan’s move to install his son-in-law as finance minister showed power in the country was now increasingly centralised.

S&P rates Turkey at BB-, lower than rivals Moody’s and Fitch following a downgrade in May, but one of its senior sovereign analysts, Frank Gill, told Reuters the country’s political changes were keeping it in focus.

“It is a bit premature to rush to conclusions, but obviously decision making is increasingly centralised,” Gill said after Erdogan appointed his son-in-law Berat Albayrak as the treasury and finance minister in his new cabinet.

“When institutions are working in sovereigns, you have a strong civil service which can take decisions, technical decisions which often take place at a non-political level,” but was no longer the case in Turkey, he said.

S&P has a stable outlook on its local and foreign-currency Turkey ratings and has warned its fiscal metrics could sour quickly if the current pressure on its financial markets continues. That is likely to depend on what Erdogan and the government do next.

“We are watching closely what the policy on the state of emergency will be, what the overall fiscal stance is going to be,” Gill said. “Will there be further extensions of the credit guarantee scheme? And where is the growth going to come from given that we feel the funding capacity of the banks is close to exhausted?”

He also questioned whether the government would start pumping additional stimulus into the economy to combat the expected hit to growth from recent interest rate hikes. If it does, that could drive up the government’s debt levels.