Turkey appoints new finance minister amid falling currency
ANKARA: In a decision taken on the night of December 2, Turkish President Recep Tayyip Erdogan appointed Nureddin Nebati as the country’s new treasury and finance minister in place of Lutfi Elvan, adopting an orthodox policy rather than monetary easing.
Elvan, who disagrees with Erdogan on lowering interest rates, is said to have voluntarily resigned from his post. He was a figure popular with market players despite the fluctuations in the country’s economic management.
It remains to be seen how the new minister, said to be loyalist, will be received by investors.
Falling to record highs against foreign currencies, the besieged Turkish Lira has lost around 45% of its value so far this year, reversing household savings.
On November 30, the lira dipped to 14 per US dollar and hit 15 per euro, making it the worst performing currency of all emerging markets. The Central Bank of Turkey quickly intervened by selling substantial amounts of foreign exchange reserves to support the lira, Bloomberg reported.
Nebati, who was deputy finance minister for three years before assuming this role, became the country’s third finance minister in just over a year.
He is known as a bureaucrat and a former businessman close to Erdogan, and he strongly supports keeping rates low in the face of soaring inflation, as they both believe that high interest rates lead to a high inflation.
However, according to Wolfango Piccoli, co-chairman of Teneo Intelligence in London, the appointment should pave the way for considerable spending in the coming months to increase government scores ahead of the 2023 election.
“Fiscal discipline, which has traditionally differentiated Turkey from most emerging markets, should soon become history,” he told Arab News.
Experts predict that the economy could be accelerated with cheap credit.
Piccoli believes the government will announce two support programs to support exports and the labor market, as well as additional initiatives that will be disclosed in the coming months to consolidate the government’s position.
“It is likely that the government can also use its funds to provide loans to businesses,” he added.
The new minister, with a university education in political science, was among the youth organizations affiliated with the Erdogan Justice and Development Party, or AKP.
“My God, make it easy, don’t make it difficult. My God, make his result useful. Give us the truth in our work, make us succeed, ”Nebati tweeted upon his appointment.
Before becoming an AKP MP between 2011-2018, he was also an active member of the board of directors of the pro-government Islamist business association MUSIAD. He is also known as a figure very close to Erdogan’s son-in-law, Berat Albayrak.
“In the recent past, former minister Lutfi Elvan hinted that improvements in the current account balance should be managed by structural changes in the structure of production rather than rate cuts,” said Selva Demiralp, professor. of Economics at Istanbul Koc University. and a former Federal Reserve economist.
“Meanwhile, the government is pushing the argument that the rate cuts will be used as a way to boost exports and reduce imports. With the appointment of the new minister, it looks like there will be better coordination between monetary and fiscal policy to keep interest rates low, ”she told Arab News.
In a recent interview with public broadcaster TRT, Erdogan said that more interest rate changes are to be expected in the coming period and that Turkey will post a surplus in 2022, while warning that there was no “going back” to the new policy. .
“That way there will be an improvement in the exchange rates before the elections,” he said.
According to the latest official data on Tuesday, the Turkish economy grew 7.4% year-on-year in the third quarter, driven by exports, manufacturing and retail demand.
In another speech to parliament last month, Erdogan hinted at an upcoming change in finance minister, stating “I’m sorry for our friends who have (high) interests, but I can’t and won’t follow the same path as them “.
Elvan was the only one who didn’t join the crowd in applauding the words.
According to economist Demiralp, further rate cuts will push deposit rates even further into negative territory, which could trigger a new wave of dollarization and increase pressure on the lira.
“This would limit the ability of banks to pass further rate cuts to their borrowing and lending rates. When the monetary transmission mechanism stops, the government could reconsider its easing cycle, ”she said.
On Thursday, the central bank governor met with domestic and international investors and economists by video conference.
Since September, the central bank has cut rates by 400 basis points to 15% against inflation that has reached around 20%.
Recent moves by Ankara to deepen ties with its previous regional competitors are also seen as part of a larger attempt to reap economic gains and attract investment from such openings.