ANKARA — Turkish President Recep Tayyip Erdogan on Saturday likely signaled a shift toward more conventional economic policies, as finance veteran Mehmet Simsek, who enjoys international credibility, is set to return at the helm of Turkey’s embattled economy.
Turkey’s newly inaugurated President Erdogan unveiled his 18-position Cabinet on Saturday, naming Simsek, former finance minister and deputy premier, as his new treasury and finance minister. The move signals a major U-turn on the part of Erdogan, whose long-held unconventional economic view relies on higher interest rates cause higher inflation. Still, Simsek, who is known as the champion of economic orthodoxy, will face an uphill battle to salvage the country’s beleaguered economy even under conventional economic policies.
After assuming sweeping powers under his executive presidential system, Erdogan made a fresh push to put his unorthodox economic policy into action. Conflicts stemming from the implementation of his controversial policy led to the discard of three finance ministers and central bank governors within a span of nearly four years. Heeding political pressure from Erdogan, the country's central bank slashed interest rates to as low as 12% in 2019 before they were re-hiked to as high as to 17% in 2020. The rates then were brought down again to as low as 8.5% over the past two years at the expense of economic growth.
Critics say the bank's independence largely eroded under Erdogan’s executive presidency system, accusing the government of depleting the central bank’s forex reserves by channeling hard currency to the market through backdoor mechanisms in a bid to rein in the devaluation of the Turkish lira in the face of lower interest rates.
