Turkish Finance and Treasury Minister’s Berat Albayrak resignation from his post, is the latest episode of Turkey’s economy and geopolitical troubles.
Anastassios Tsiplacos - Managing Editor
After almost a day of silence, it has been announced that President Erdogan accepted the resignation of his son in law Berat Albayrak. In a statement released by the presidency, the office thanked Albayrak for his service during the COVID-19 pandemic and credited him with helping to minimise its impact on Turkey. It acknowledged Albayrak’s earlier statement on Instagram and said President Erdogan was granting his request for leave.
The “son-in-law effect”
Amid the fog of misinformation, some analysts reported rather jarring allegations as to what happened between Erdogan and Albayrak. One claim was that Albayrak was upset about a newly appointed Central Bank head. Another was that dozens of AKP lawmakers threatened Erdogan to switch to an opposition party if Albayrak was not fired. Another argued Erdogan wanted to change the leadership of the economy.
There are many gossipes about the vast wealth accumulated by Berat Albayrak, the son-in-law of President Recep Tayyip Erdogan. The Parliament is rife with whispering that Albayrak managed to accumulate some $1.8 billion and that the cash is deposited in a bank in Singapore or in Malaysia.
The story goes that Albayrak earned the cash after he went into business with Jared Kushner, Trump’s son-in-law, and Mehmet Ali Yalcndag, the son-in-law of former Turkish media mogul Aydn Dogan. Their business activities are allegedly in trade and petroleum, and most probably the Halkbank which is under judicial investigation in U.S.A. for breaking the sanctions to Iranian oil exports.
Several sources in Ankara indicated that the truth involved a deep rift between Erdogan and Albayrak, that may now have consequences for the former minister’s family businesses as well. The real reason is “betrayal,” said multiple AKP elites. Albayrak was appointed to government positions exclusively due to his family links, but he now seems to have lost Erdogan’s confidence.
On Saturday, the Turkish President sacked the head of the Turkey’s central bank and replaced him with mr. Naci Agbal, a former finance minister. No reason was given for the sacking of Uysal, whom mr. Erdogan had cherrypicked in July 2019 as a docile replacement of Murat Cetinkaya, who, the president said, was disobeying his instructions to keep interest rates low. This decision, which was allegedly done without consulting Albayrak, was speculated to have motivated him to resign from his post. In his initial resignation statement, mr. Albayrak cited unspecified health issues and a need to spend more time with his family as reasons for his departure. In a report by Reuters, several sources said the manner in which he resigned set off a scramble for clarification from him. They also said the decision personally upset his father-in-law Erdogan.
In another announcement, President Erdogan named Lutfi Elvan as his new Treasury and Finance Minister. Mr. Elvan was elected as a member of the AKP in 2007 and previously served as a deputy prime minister under Ahmet Davutoglu, as well as a minister for transportation and development. He recently served as the chairman of the planning and budget commission at the Turkish parliament before being tapped for his new role.
Meanwhile, Turkey’s lira fell, partly reversing the biggest rally in two years on Monday, after President Erdogan appointed party insider mr. Lutfi Elvan to replace his son-in-law. The lira fell by 3.2% to 8.3237 per dollar in Istanbul on Tuesday morning. It had gained almost 5% on Monday, when Albayrak’s resignation and Erdogan’s weekend replacement of the country’s central bank chief raised expectations among investors for tighter monetary and fiscal policy.
The departure of mr. Albayrak and the manner in which his resignation has been handled underscores Turkey’s transformation during Erdoğan’s 17-year rule from a parliamentary, pluralistic democracy with an independent media into a country of one-man rule. Many in Turkey, including senior officials of AKP, had believed that the president was lining Albayrak up as a future party leader and even as his possible successor. “Resigning like this caused serious damage to both Erdoğan and the party,” one AKP official said, according to Reuters.
Albayrak’s resignation signals a new direction for Erdogan’s Turkey as the pressures of COVID-19, a tumbling lira and worried international investors continue to mount. The initial silence of the Turkish President, over the resignation of his son-in-law, was indicative of his shock and embarrassment, while at the same time raised many questions over the direction of economic and monetary policy, as well as the new era he has to confront after the outcome of the US elections and the loss of his “protector” and friend President Trump.
Defending the Lira…
International credit ratings agency Fitch said the chances of a hike to Turkey’s benchmark interest rate would increase significantly should the lira continues to weaken.
Further pressure from the currency, double-digit inflation and depleted foreign exchange reserves “…would significantly increase the chances” of an interest rate hike by year-end, said Douglas Winslow, Fitch’s main analyst on Turkey. The central bank has “limited independence” from political pressure for lower rates, Winslow said. “A track record of being slow to respond to events” raises the risk that too-loose policy stokes external imbalances and market instability, he added.
Turkey’s sovereign debt is rated junk by all three major credit ratings agencies. Fitch’s rating of ‘BB-‘ is the highest. Fitch lowered its outlook on the rating to “negative” from “stable” in August, citing weak monetary policy and declining foreign currency reserves.
Investors in Turkey should doubt that the replacement of the country’s central bank governor and finance minister represents real change in economic policy. Economic policies followed by the Erdoğan government, including coercing the central bank into keeping interest rates low to engineer a borrowing boom, have led to the slump in the value of the lira and caused the bank to burn through most of its foreign exchange reserves defending the currency.
“Investors hope that the resignation of the finance minister Mr. Albayrak and the appointment of a long-time critic of his policies to the position of central bank governor is an admission of defeat by Erdoğan,” the FT’s editorial board said.
The most important step Turkey’s new economic team now needs to take is to provide competent economic management. But Erdoğan’s policy approach, which includes staunch opposition to higher interest rates, means that will be a struggle. “Investors should be skeptical that the latest shake-up represents a fundamental change in policy,” the FT’s editorial board concluded.
Turkey pays off part of Somalia’s IMF debt, but there may be a reason behind this generosity…
On the other hand, it is questionable whether the average middle-class Turk knows that his country’s declining economy is contributing to debt relief to Somalia by pledging around 2.4 million in Special Drawing Rights (SDR), an IMF reserve currency, according to Turkey’s Official Gazette announcement. President Erdogan‘s decision to assist the economy of the Horn of Africa country will see Turkey dip into its cash reserves, according to the Official Gazette. As a result, Somalia’s debt will be reduced from $5.2 billion at the end of 2018 to $3.7 billion.
Turkey has established firm alliance with Somalia over the years and has invested heavily into the African country. Earlier this year, Somalia reportedly invited ally Turkey to explore oil in its seas, Turkish President Erdogan said in January. Turkey also has a significant presence in Somalia and operates one of a number of foreign military training operations in the Horn of Africa nation.
Somalia’s Justice Minister Abdul Qadir Muhammad Nur expressed his gratitude to Turkey for the assistance. It shouldn’t go unnoticed that it was the Minister of Justice that publicly thanked the Turkish President for his support rather than the Somali Finance Minister, the Prime Minister or even the President.
And it probably wouldn’t mean much, if it wasn’t for one important detail: the President of the International Court of Justice in the Hague is the Somali Judge Abdulqawi A. Yusuf and will be in office until 2027. Given the fact that Greece is trying to make Turkey agree to go to The Hague for the delimitation of their maritime zones, the Turkish gesture to Somalia, in this stressful time for the Turkish economy, seems like a well-thought move.
How much more patience….for mr. Erdogan?
President Erdogan’s regime is in the most difficult period since its election to presidency in 2014 and most probably is coming to an end. Because everything in life has a beginning, a mid and an end. The one-million-dollar question, however, is what kind of end mr. Erdogan will have and whether even he himself knows the answer.
The deplorable economics of Turkey have led the country into a path of heavy recession, which under ordinary conditions cannot be reversed. The economic situation is much worse than what the government claims and there are no credible official statistics as to unemployment and family incomes. The government keeps such figures secret, and this is enough to indicate that the situation in Turkey is really bad. The problem is that besides the state, which is essentialy bankrupt, ordinary middle-class families are driven to bankruptcy too.
Over a year now, the economic and social situation in Turkey is deteriorating, and ordinary Turkish middle-class families all over the territory, begun massive sales of family jewellery -the traditional way of savings in the Muslim world. Indeed, families that constituted the then rising middle-class of Turkey as a result of the late President’s Turgut Ozal policies, are now starving and they are liquidating the jewels of the house to purchase food. However, for how long?
Amid such gloom, one would expect the business community to lead criticism of the country’s economic management and propose solutions. Yet, none of Turkey’s main business groups is willing to speak up, wary of Ankara’s wrath. Business people have seen ample examples of how President Erdogan could view any criticism as subversion, sue critics or bully them through the state’s tax apparatus.
The Turkish Industrialists and Business People Association (TUSIAD) -the most influential and deep-rooted business group- has long been mute, intimidated by the government. The association, which brings together the country’s largest conglomerates, some of them age peers of the 97-year-old modern Turkish republic, has been seen as a threat or adversary by mr. Erdogan ever since his Justice and Development Party (AKP) came to power in 2002.
The semi-official Union of Chambers and Commodity Exchanges of Turkey (TOBB) is another prominent group representing the business community, including smaller enterprises and shopkeepers. Its chairman of almost two decades, Rifat Hisarciklioglu, is said to have backed the creation of the AKP in 2001, albeit behind the scenes, and has largely stood by the party’s policies during its 18-year rule. The companies under the TOBB umbrella are worried by the downtick in economic growth in the past five years, including contraction in the past three years. They are increasingly aware that things are not going well but remain reticent on criticizing the government’s policies. Hisarciklioglu seems to have adopted silence as a policy.
The Independent Industrialists and Businessmen Association (MUSIAD), another major organization, is known to be religiously oriented and very close to the government. Most notably, the group has always backed Erdogan’s controversial but adamant stance against interest rate hikes. Its members were the first to reap the benefits of the AKP’s economic heyday, but they, too, are now taking blows from the slump of the lira, the shrinking domestic market and the crisis in the construction sector. Still, the group has refrained from penning reports or commenting on the downturn.
Business people disgruntled with the AKP are likely to turn to the two new parties that AKP defectors have recently established -the “Democracy and Progress Party”, led by former economy supremo Ali Babacan, and the “Future Party” of Ahmet Davutoglu, a former premier and foreign minister- but they are still keeping their cards close to their chest, knowing that an open display of support will inevitably earn them President Erdogan’s wrath. It seems their true colors will show only if the prospect of early elections hits the horizon. And there are already signs that Turks might go to the polls earlier than the scheduled time in 2023.
The situation, however, has now reached a point of “non-plus-ultra”
President Recep Erdogan, is in a deadlock where from he cannot get out. He opted for the opening of war fronts in neighbouring countries. Mr. Erdogan thought that in this way, for flag and country, he would restore national unity and would avoid the further dismemberment of the remains of Ottoman Empire that is modern Turkey, with the creation of a Kurdish State which any way is in the making.
In this context, besides the troops Turkey is maintaining in EU member-state Cyprus since 1974 (about 60,000) has deployed troops in Libya, Syria, Iraq, now Nagorno Karabakh alongside with Azeri forces. Recently, in a desperate move aiming at maintaining domestic control mr. Erdogan rose the stakes and entered into a direct confrontation with the European Union threatening with military action member-state Greece while warning the bloc, that “…its cities will not be safe anymore”.
The warning was indirectly yet clearly addressed primarily to Germany where from the five million Muslims living there four million are of Turkish origin, living in ghettos. In Germany there are sufficient numbers of Mosques and Islamic cultural centres capable to act at family levels and all the Imams and Islamic spiritual leaders are under direct control of the Turkish Consulates in Germany.
Just conspiracy scenarios?
According to independent NGO “Nordic Monitor”, after mr. Erdogan underwent a serious surgery a few years ago, he suffers from epilepsy and certain psychological ups and downs, which explain his often-controversial behaviour, anger explosions and out of control remarks and unadvised decisions. It was during one of such nervous break-down that he made a public statement saying that the French President Emanuel Macron needs “mental treatment”.
Sources close to Cankaya, claim that his erratic behaviour, may lead the country into irreversible adventures. Same sources say that high ranking career military, are convinced that only the replacement of the present authoritarian regime with a moderate democracy, with minimum collateral damages, can drive the county in social peace, prosperity and get it closer to Europe and the USA again.
Other sources close to Washington, claim it is not ruled out that in the near future, the Turkish military may take the initiative to overthrow the Erdogan regime and normalizing Turkish relations with the USA, NATO and the bloc, avoid the dismemberment of the country, and restoring its long and difficult path to Europe. However, this is the best-case scenarios….
In the mind of Recep Tayyip Erdogan…
Faced with all those harsh realities, President Erdogan is clearly aiming to spawn a stint of “spring weather,” braving certain costs. The stunning replacements of Turkey’s central bank governor and the treasury and finance minister send a strong signal that Recep Tayyip Erdogan, alarmed over snowballing economic woes, could risk snap elections to salvage his political future.
In any case, Turkey’s economic turmoil can hardly be overcomed by replacing officials as it stems from accumulated structural problems, compounded by an institutional erosion that President Erdogan’s “one-man rule” has caused by upholding loyalty over merits.
Turkish President’s snap elections plan could hardly be limited to tidying up the government by replacing officials. Fresh moves to suppress the opposition, which is closing ranks, block the pro-Kurdish Peoples’ Democratic Party from contesting the elections and gag what remains from the critical media should not come as a surprise, as his maneuvering room is shrinking fast.
The period toward January’s 20th is critical…
Turkey’s President Recep Tayyip Erdogan thrives on military crises, often threatening Armenia, Syria, Iraq, Egypt, Cyprus, Greece, Israel and other countries. In recent weeks there was concern Turkey might shift from trying to boost Azerbaijan’s war with Armenia, to threatening Greece, Cyprus, US-backed Kurdish forces in Syria, or even Israel.
Turkey tried desperately to lobby the Trump administration, to the extent that President Erdogan was the leader US President listened to the most, in phone calls in 2018 and 2019, frequently calling the White House to “order” the US to leave Syria. All those demands made by Turkey could fall on deaf ears of the new President Biden. Erdogan’s team has already slammed Biden and the Democrats.
President Ergogan, however, is most likely to seek a chance to stir up trouble as post-election indecision roils Washington. He has begun to make his moves or, even more, may demand one last minute favor from the Trump administration, although his effort to balance between the two contestant Presidents, by officialy recognizing Biden’s presidency, may alienate his once upon a time “friend”-benefactor and possibly has the opposite results.
Perhaps the move of the US Secretary of State Pompeo -a staunch supporter of President Trump’s post-election “resistance”- to travel to Istanbul to meet with Ecumenical Patriarch Vartholomaios “…to discuss religious issues in Turkey and the region and to promote US strong stance on religious freedom around the world,” without meeting any Turkish official because “…his agenda is too packed and he couldn’t make space for Ankara,” is a strong message to mr. Erdogan about the US administration’s current feelings for him and Turkey…