Updated: November 22, 2020 8:26:50 am
Earlier this month, Turkey president Recep Tayyip Erdogan’s son-in-law, Berat Albayrak, announced his resignation as the country’s Treasury and Finance Minister. The question commentators are asking is whether the move is related to the worsening Turkish economy, or whether it concerns the power equations within the family.
What has happened with the President and his son-in-law?
Albayrak announced his decision on Instagram on November 8, saying he was resigning for health reasons. The resignation went largely unreported by the mainstream Turkish media, apparently for fear of a backlash from Erdogan. It took the President’s office over 24 hours to acknowledge and accept the resignation. On November 11, Erdogan appointed former Deputy Prime Minister Lutfi Elvan as Albayrak’s successor.
Albayrak’s announcement came a day after Erdogan had fired the Governor of Turkey’s Central Bank, Murat Uysal, 16 months after he had taken office. Some believe this is the reason Albayrak resigned. Erdogan replaced Uysal with former Finance Minister Naci Agbal, who has been critical of Albyarak’s economic policies over the last two years. According to some media reports, Albayrak was not briefed about Uysal’s sacking.
Why is the resignation significant?
Media reports have noted that Albayrak was viewed as Erdogan’s heir apparent, and that he was being groomed for the role.
On his blog, the Turkish economist Ugur Gürses has called Albayrak’s resignation “a privilege of his own” since there is no example in the 17-year Erdogan administration of someone “who resigned with personal preference”. He noted that Albayrak’s resignation is an anomaly, considering all ministers have so far been dismissed or relocated at Erdogan’s will.
That makes the resignation especially surprising, given that Albayrak is thought to be the country’s second most powerful person. 📣 Express Explained is now on Telegram
How bad is Turkey’s economy?
Erdogan has been in power since 2003, first as Prime Minister, and then as President since 2014. In these years, Turkey’s economy nearly doubled in size at an annual rate of about 5.6%, according to a BBC report, but then it shrank in the third and fourth quarters of 2018.
That was the year when Albayrak took over as Finance Minister. Since then, the economy has been marked by slowdowns and the weakening of the Turkish lira, both of which have been exacerbated by the pandemic. And 2018 was also the year when the parliamentary government system was replaced with a presidential system, concentrating power in the President, and giving Erdogan greater powers to influence institutions such as the country’s Central Bank.
When Albayrak took over as Finance Minister, his early initiatives were aimed at keeping interest rates low and inflation in check. This unorthodox approach is something Erdogan is known to favour. In fact, one of the reasons that the lira has been hitting record lows against the dollar is because of pressure from Erdogan on the Central Bank not to raise interest rates.
In September this year, however, the Central Bank raised its benchmark interest rate by 2 percentage points in the hope that this will bring down inflation and attract investors to buy the lira.
How is Albayrak’s tenure as Finance Minister perceived?
Due to high rates of unemployment, double-digit inflation and the declining value of the lira (it has lost more than 25% of its value since the beginning of this year and is one of the worst performing currencies of the year), Albayrak was considered an unpopular Finance Minister of what was once seen as one of the fastest-growing global markets.
However, as Gürses notes on his blog, being the President’s son-in-law “gave him very solid political support and strength”, because of which he was able to sign “wrong decisions in a blindfold”. Some of these decisions include imposing interest restrictions on bank deposits and loans, restrictions on foreign exchange transactions, and pressuring companies to lower prices following the currency shock in August 2018.
In contrast, new Central Bank Governor Agbal and Finance Minister Elvan, in comments they made last week, have promised to improve the quality of public finance by maintaining fiscal discipline.
So, how should the resignation be understood?
The news portal The Middle East Eye wrote that Albayrak’s resignation could have been prompted by a realisation from Erdogan about the unmanageable scale of Turkey’s economic crisis, with the tipping point being Albayrak’s decision to start using up foreign currency reserves to keep interest rates down. As per an estimate by Goldman Sachs, Turkey has spent over $101 billion to intervene in its currency markets.
From one perspective, Albayrak’s resignation can be seen as a case of “palace intrigue” — as a Washington Post analysis has called it — and as an attempt by Erdogan to have the final say in financial matters.
From another perspective — that of financial analysts surveyed by Reuters — this series of events can be seen as a shift towards more “orthodox” and restrictive economic policies, with hope placed in the combination of Agbal and Elvan to salvage the currency, and possibly stabilise it, by focusing on increasing interest rates and undertaking structural reforms.
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