Analysis: Investors' hopes for Turkey's economic future ride on new cabinet picks
29/05/2023 15:16
By Karin Strohecker and Libby George
LONDON, May 29 (Reuters) - The top policymaker picks of
Turkey's re-elected president Tayyip Erdogan are taking centre
stage as markets try to gauge whether he will change course
towards economic orthodoxy or double down on policies widely
viewed as unsustainable.
Erdogan is widely expected to use his victory in Sunday's
election to embark on a wide cabinet reshuffle, potentially
changing the finance and economy portfolios as well as the
central bank leadership, as his rule embarks on a third decade.
Foreign investors have swerved Turkish bonds and equities in
recent years as the economy gyrated through boom-and-bust
cycles, rampant bouts of inflation and a currency crisis that
has seen the lira lose more than 90% over the past decade. On
Monday, the lira tumbled to a fresh record low.
Erdogan's increasing interventions to stabilise the lira,
and his insistence on ultra-low interest rates, have piled
pressure on Turkey's fiscal budget and financial sector. With
reserves dwindling, few doubt that changes are unavoidable. But
just how deep and meaningful these will be remains uncertain.
"In an environment with highly centralized decision-making,
the market will pay attention to a change in the economy team
only if this change signals a decisive turn in policymaking,"
said Emre Akcakmak, at asset manager East Capital, which is
invested in Turkish stocks.
Economic policy divisions emerged in the days before the
Sunday vote, when ruling party members gathered to discuss how
they might adopt a new policy of gradual interest rate hikes and
a targeted lending programme.
"The final decision related to finmin (finance minister)
position is likely to provide some strong signals about economic
policies in the new term," said Ercan Erguzel at Barclays,
noting there had been efforts to bring back former finance
minister Mehmet Simsek, who was well respected by markets.
"If markets see the appointment of Simsek, or a similar
orthodox figure soon, expectations for a quick return to
orthodoxy would strengthen."
Others feared scars left by a revolving door at key economic
and monetary policy institutions will endure. Those personnel
changes occurred as Erdogan sidelined technocrats and hollowed
out the institutional capacity of the central bank and ministry
of finance.
The last four years have seen four governors at the helm of
the central bank alone.
"Surrounded by supporters seemingly selected based on
loyalty, the danger is that the sensible voices still left in
the AKP are now too distanced to have any influence on Mr
Erdogan's decision-making," said Roger Mark, an analysts at fund
manager Ninety One.
Erdogan has given little indication on the shape of economic
policy in the weeks and months to come, though he acknowledged
some issues facing the nation of more than 80 million people.
"The most urgent topic of the days ahead is to relieve the
troubles resulting from the price rises caused by inflation and
to make up for the losses in prosperity," Erdogan said in his
victory speech in Ankara, predicting inflation - which stood at
around 44% in April - would fall, just like interest rates had
done.
Tuncay Tursucu, founder of Tuncay Tursucu Research and
Consulting, said that Erdogan's speech emphasised
"internationally respected financial management," raising hopes
of policy shifts.
"However, in order for this rise to be permanent, it is
necessary to determine the cabinet, to clarify the names that
will come to the economy management, and to announce a new
roadmap, if any, on the economy," Tursucu said.
Pre-election optimism for economic policy u-turns largely
evaporated after Erdogan's strong first-round showing confounded
the polls and set the stage for his third decade in office.
Thomas Gillet, director of sovereign ratings at Scope
Ratings, said a partial adjustment of the policy mix was still a
possibility, but would require consistent planning and
implementation to be effective.
"However, President Erdogan has given little indication of
any such U-turn," Gillet said.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Turkey struggles to attract foreign investors https://tmsnrt.rs/3I0s2Yb
The lira's long decline https://tmsnrt.rs/3MxZjuX
Turkey's 'net' FX reserves deep in the red https://tmsnrt.rs/43fXl9o
Turkey's inflation remains way ahead of the rest https://tmsnrt.rs/425Oq9J
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Karin Strohecker and Libby George in London,
additional reporting by Canan Sevgili in Gdansk, Editing by
William Maclean)
((karin.strohecker@thomsonreuters.com; +442075427262; Reuters
Messaging: karin.strohecker.reuters.com@reuters.net))