Finance minister Berat Albayrak, president’s son-in-law and potential successor, resigns
Turkey’s depressed lira has recovered by as much as 6% after the departure of the finance minister and replacement of the Central Bank governor.
The currency, which had tumbled 40% against the US dollar this year, reversed course on Monday after Finance Minister Berat Albayrak, the son-in-law of President Recep Tayyip Erdogan, stepped down, and a new central-bank governor, Naci Agbal, was named over the weekend, replacing Murat Uysal, who was fired.
An Instagram post from Albayrak’s account said on Sunday that he was resigning. He had been seen as a possible successor to Erdogan.
Agbal, a former finance minister from Erdogan’s Justice and Development Party (AKP), became the fourth central-bank governor in five years.
“The timeline suggests there’s a connection between the two [events],” Can Selcuki, managing director of Istanbul Economics, a corporate advisory and public affairs consultancy, and a former economist with the World Bank, told The Media Line.
The details surrounding Albayrak’s decision to step down remain murky. An Instagram post announcing government changes is unusual in Turkey.
There is speculation that Erdogan may not accept the resignation. In April, the president rejected the resignation of his interior minister.
“The markets in such events don’t really favor uncertainty. They prefer certainty, and this situation only brings uncertainty,” Selcuki said. “It’s not a good sign of stability for the markets. It’s not a good sign of stability for the government.”
The markets in such events don’t really favor uncertainty. They prefer certainty, and this situation only brings uncertainty. It’s not a good sign of stability for the markets. It’s not a good sign of stability for the government
However, Timothy Ash, a London-based economist who focuses on Turkey, says that while he had expected the markets to react well to the appointment of a new central-bank governor, Albayrak’s resignation could lead to confusion.
“I’ve met [Agbal] numerous times. He’s very credible, he’s very orthodox,” Ash told The Media Line. “Everyone sees him as a capable technocrat…. I haven’t seen anyone say anything negative about Agbal.”
Ash sees two theories about Uysal’s dismissal. The first is that he had wanted to increase interest rates, while the second is the lira’s weakness. Although Erdogan has insisted that interest rates remain low in order to spur economic growth, Ash believes the latter is probably the real reason.
Observers will be waiting to see whether Agbal raises interest rates. The next Central Bank meeting is scheduled for November 19, but an emergency meeting could be called.
Erdogan, who was prime minister before becoming president with extended powers, oversaw rapid development and a booming construction sector that boosted his popularity. However, unorthodox policies that included low interest rates and a son-in-law as finance minister strained relations with Western allies, hurting the Turkish economy even before the coronavirus pandemic.
The country’s currency went into freefall in 2018 after the US sanctioned Ankara for detaining an American pastor. The lira also took a hit the same year after Erdogan appointed Albayrak finance minister, raising investors’ concerns about the president’s tight control over economic policy.
The lira never fully recovered and weakened further this year during the pandemic.
A feeble currency has meant rising food prices and inflation. Last month, the Central Bank forecast that the year-end annual inflation rate would be 12.1%, the Hurriyet newspaper reported.
Turkey’s economic troubles were cited as one reason for the AKP’s loss of both Istanbul and Ankara in the 2019 mayoral races, the ruling party’s biggest political defeat since Erdogan came to power.
As leader of the United States, US President-elect Joe Biden could put more pressure on the lira. President Donald Trump had stopped Congress from sanctioning Turkey for its purchase of Russian weapons. In contrast, Biden says he will get tough with Ankara.
The end of the Trump era will also make Albayrak less important. He is seen to have maintained a good relationship with another son-in-law, Jared Kushner, who has been one of President Trump’s most senior advisers.
“I guess a Biden presidency creates more risk of a difficult relationship,” Ash said. “I don’t think that will be the end result, but I think the perception is that it could be a difficult relationship in the short term.”
I guess a Biden presidency creates more risk of a difficult relationship. I don’t think that will be the end result, but I think the perception is that it could be a difficult relationship in the short term
Both Ash and Selcuki agree that the key economic issue for Turkey is whether Agbal, the new Central Bank governor, will be able to act independently.
“Everyone is waiting to see whether this is indeed… PR and image-making or this is indeed a genuine attempt to put things in order,” Selcuki said.