Turkish economy to return to ‘rational ground’, says new FM
Mehmet Simsek (left) attends an handover ceremony with his predecessor Nureddin Nebati in Ankara on Sunday. Reuters
President Tayyip Erdogan named Simsek to his cabinet on Saturday to tackle Turkey’s cost-of-living crisis and other strains, in a clear sign that his newly elected government would return to more orthodox economic policies.
In a handover ceremony, Simsek said the main goal of the new government will be to increase social welfare.
“Transparency, consistency, predictability and compliance with international norms will be our basic principles in achieving this goal,” Simsek said.
“Turkey has no other choice than to return to a rational ground. A rules-based, predictable Turkish economy will be the key to achieving the desired prosperity.”
Macro-financial stability in an environment of increasing global challenges and geopolitical tensions will be a priority, he said.
“Establishing fiscal discipline and ensuring price stability for sustainable high growth will be our main goals,” he said.
Simsek, who was highly regarded by financial markets when he served as finance minister and then as deputy prime minister between 2009 and 2018, said that lowering Turkey’s soaring inflation to single digits will be another priority.
“It is vital for our country to reduce inflation to single digits again in the medium term, to increase predictability in all areas, and to speed up the structural transformation which will reduce the current account deficit,” he said.
Turkey’s annual consumer price inflation hit a 24-year peak beyond 85% last year, and stood at 44% in April.
Fiscal policies and structural reforms will support Turkey’s central bank to help lowering inflation, Simsek also said.
The central bank’s policy of stabilising the lira sent its net foreign reserves into negative territory last month for the first time since 2002.
The lira hit new all-time lows beyond 20 to the dollar after the May 28 run-off vote in the election. It lost more than 90% of its value in the last decade after a series of crashes, the worst in late 2021.
Goldman Sachs sees the lira slipping to 28.00 against the dollar in 12 months.
On Saturday, President Tayyip Erdogan signalled that his newly-elected government would return to more orthodox economic policies when he named Mehmet Simsek to his cabinet to tackle Turkey’s cost-of-living crisis and other strains.
Simsek’s appointment as treasury and finance minister could set the stage for interest rate hikes in coming months, analysts said - a marked turnaround from Erdogan’s longstanding policy of slashing rates despite soaring inflation.
After winning a runoff election last weekend, Erdogan, 69, who has ruled for more than two decades, began his new five-year term by calling on Turks to set aside differences and focus on the future.
Turkey’s new cabinet also includes Cevdet Yilmaz, another orthodox economic manager, as vice president, and the former head of the National Intelligence Organisation (MIT) Hakan Fidan as foreign minister, replacing Mevlut Cavusoglu.
The apparent U-turn on the economy comes as many analysts say the big emerging market is heading for turmoil given depleted foreign reserves, an expanding state-backed protected deposits scheme, and unchecked inflation expectations.
Simsek, 56, was highly regarded by financial markets when he served as finance minister and deputy prime minister between 2009 and 2018.
Reuters reported earlier this week Erdogan was almost certain to put him in charge of the economy, marking a partial return to more free-market policies after years of increasing state control of forex, credit and debt markets.
Analysts said that after past episodes in which Erdogan pivoted to orthodoxy only to quickly return to his rate-cutting ways, much would depend on how much independence Simsek is granted.
Turkey’s lira tumbled on Wednesday to a fresh record low against the dollar as President Tayyip Erdogan prepared to decide the shape of his new cabinet and the direction of economic policy after an election triumph.
In its third successive day of losses, the lira weakened nearly 1.6% to a record low of 20.75 against the US currency, taking its losses this year to nearly 10%. It later firmed slightly, standing at 20.7150 at 1149 GMT.
The currency’s implied volatility gauges climbed on Wednesday with the one-year measure rising to 45.46% - its highest in at least a decade and a half, data from Fenics showed.
