President Recep Tayyip Erdogan’s son-in-law has resigned as Turkey’s finance minister as part of a surprise weekend shake-up in the country’s economic management after a period of intense pressure on the lira.
One day after Mr Erdogan fired the country’s central bank governor, Berat Albayrak said in a statement on Sunday that he was stepping down for health reasons after five years in frontline politics. Members of the finance minister’s inner circle had no prior warning of the move. A spokesman for Mr Albayrak confirmed the authenticity of the message, but it was unclear whether the president would accept the request to stand down.
The apparent reshuffle has created a “very tense” situation for the Turkish lira, which is already pinned at record lows, said Ed Al-Hussainy, a currencies and rates analyst at Columbia Threadneedle. Yet even as the post of finance minister remained vacant, the currency rallied as much as 2 per cent against the dollar in Asian trading on Monday morning.
During his two years in charge of the Treasury and finance ministry, Mr Albayrak faced heavy criticism from foreign investors, Turkish opposition parties and even — in private — members of the country’s ruling Justice and Development party (AKP).
Still, his resignation stunned political observers who saw the 42-year-old as one of Mr Erdogan’s most trusted lieutenants.
Two people with close links to the AKP said the finance minister did not see eye-to-eye with Naci Agbal, who was appointed central bank governor on Saturday after Mr Erdogan abruptly fired his predecessor.
The lira has lost 30 per cent of its value against the dollar since the start of 2020, and hit a succession of record lows in recent weeks in the second bout of currency turmoil in two years. Foreign currency reserves are at a 20-year low, prompting the rating agency Moody’s to warn in September that the country had “almost depleted the buffers that would allow it stave off a potential balance-of-payments crisis.”
Economists say the simplest way to soothe the currency and get double-digit inflation under control would be to raise interest rates — a step that the central bank has taken at times but that Mr Erdogan has described as “the mother and father of all evil”.
Murat Uysal — who lasted just 16 months in the job of central bank governor — appeared to have done exactly what Mr Erdogan wanted. He frequently cut interest rates and largely resisted market pressure for a rate increase to avert a downward spiral in the lira. But that did not protect him from an unceremonious removal announced in Turkey’s official gazette in the early hours of Saturday.
“It is a bit surprising,” said Turgut Kisinbay, director of fixed income research at the asset manager Invesco. “We are still scratching our heads to understand the trigger.”
Mr Agbal, the new governor, is a UK-educated former finance minister and one of the few remaining names in government seen as subscribing to mainstream economic thinking. In an interview with the FT in 2016, he stressed the need for the central bank to fight inflation.
He is well-regarded among international investors who got to know him during his time as under-secretary at the ministry of finance and later as minister.
“That department, especially at that time, used to play it very straight,” said Kieran Curtis, an emerging market debt manager at Aberdeen Standard Investments. “They were very good with investors.”
Naci Agbal’s CV
Born in 1968 in rural Bayburt, north-east Turkey, Mr Agbal studied public administration at Istanbul University before an MBA at the University of Exeter in the UK.
From the early 1990s, he worked as a bureaucrat in Turkey’s finance ministry, becoming under-secretary and, later, minister of finance. He forged a good relationship with foreign investors, and was known for his commitment to fiscal discipline.
He entered parliament under the banner of Recep Tayyip Erdogan’s ruling Justice and Development party in 2015, and is seen as a close ally of the president.
From 2018 until his surprise appointment as central bank governor, he served as head of the Turkish presidency’s directorate for strategy and budget.
Yet even if Mr Agbal knows what needs to be done to stabilise the lira, it remains unclear whether Mr Agbal will have the political room for manoeuvre that has been denied to previous governors.
“The incoming governor’s job is not easy at all,” said Hakan Kara, who served as the central bank’s chief economist until he was removed from his post last year. Mr Kara said that the next rate-setting meeting on November 19 would be a critical moment. “He will be immediately tested in terms of his willingness and ability to deliver the necessary rate hike,” he said.
Opposition parties said that, beyond the choice of governor, the real problem was much deeper rooted economic issues and a political system that placed too much power in the hands of the president.
“We must not forget that the fundamental reason for the problems that the economy is experiencing is bad management and a partisan presidential system that shuns institutional . . . thinking, eschews meritocracy and destroys our established institutions,” said Ali Babacan, a former finance minister in Mr Erdogan’s government who now heads his own party.
Additional reporting by Eva Szalay in London and Hudson Lockett in Hong Kong