Turkey’s new economic broom has too much to tidy
The appointment of Mehmet Simsek as Turkey’s new treasury and finance minister at the weekend has sparked some investors’ hopes of a return to monetary orthodoxy in a country beset by soaring inflation. Despite yet another fall in the lira on June 5, markets hold him in high regard. That’s unlikely to be enough to counter President Tayyip Erdogan’s long-held penchant for economic mismanagement.
Simsek, who was finance minister and deputy prime minister between 2009 and 2018, would have a nearly impossible task even in normal conditions. He has to tame inflation that is running at 39.6%, bolster a currency hovering near a record low against the US dollar, and restore Turkey’s credibility with international investors. But the new economic tsar will not operate in normal conditions. Erdogan, basking in a surprise election victory that will extend his rule into a second decade, is a self-declared enemy of interest rates. His pressure has meant that the central bank has cut rates from 19% in late 2021 to 8.5%, fueling rampant rises in consumer prices.
Simsek may be able to lift some of the de facto capital controls that have depleted foreign currency reserves and restricted investment from abroad. But that would further weaken the lira and do little to tame inflation. The currency has lost 5% against the dollar since Erdogan’s re-election on May 28. Simsek needs more than investors’ respect to right Turkey’s listing ship. [Reuters]
