Analysis: Investor Expectations for Turkey’s Economic Future Embark on New Ministerial Appointments

LONDON, May 29 (Reuters) – Markets will see if re-elected Turkish President Tayyip Erdogan turns to policy-economic legitimacy or step up policies widely seen as unsustainable In the midst of this, the top person he has appointed as policy maker is attracting attention.

Erdogan has used Sunday’s election victory to launch a major cabinet reshuffle, widely said to have the potential to transform his financial and economic portfolios and central bank leadership as he enters his 30th year in power. expected.

Foreign investors have turned away from Turkish bonds and stocks in recent years after a boom-bust cycle, rampant inflation and a currency crisis that saw the lira drop more than 90% over the past decade. On Monday, the lira fell to new record lows.

Erdogan’s stepped-up intervention to stabilize the lira and his insistence on ultra-low interest rates are increasing pressure on Turkey’s fiscal budget and financial sector. As reserves dwindle, few doubt that change is inevitable. But how deep and meaningful it will be remains unclear.

“In an environment of highly centralized decision-making, markets will only open if a change in the economic team marks a decisive shift in policy-making,” said Emre Akchamak of East Capital, an asset manager that invests in Turkey. will look to change the economic team,” he said. KK.

Days before Sunday’s vote, ruling party lawmakers met to discuss how to adopt the new policy of gradual interest rate hikes and a targeted lending program. surfaced.

“The final decision relating to Finmin’s (finance minister) position is likely to send some strong signals about economic policy in his new term,” Barclays’ Erkan Ergzell said, citing former finance minister Mehmed Simsek as his predecessor. He pointed out that efforts were made to get the minister back. Highly rated by the market.

“If the market sees the appointment of Simsek, or a similarly orthodox figure, near, it will strengthen hopes of an early return to orthodoxy.”

Some fear that the revolving door’s scars on key economic and monetary policy institutions will remain. These personnel changes come as President Erdogan sidelines the technocrats and hollows out the institutional capacity of the central bank and the Ministry of Finance.

Over the past four years, four governors have single-handedly held power at the central bank.

Fund manager and Ninety-One analyst Roger Mark said: “While surrounded by supporters who appear to have been chosen on the basis of loyalty, the danger is that the voices of common sense that still remain within the AKP will become too distant. , the inability to influence Erdogan’s decision-making,” he said.

Despite acknowledging some of the problems facing the country of more than 80 million people, Erdogan offered little indication of the shape of economic policy in the coming weeks and months.

In his victory speech in Ankara, Erdogan said, “The most urgent task in the coming days is to alleviate the problem of inflation-induced price rises and compensate for the loss of prosperity,” adding that inflation will be around 44%. expected. % in April will fall in the same way interest rates have fallen.

Tunkay Tursk, founder of Tunkay Tursk Research and Consulting, said President Erdogan’s speech, which emphasized “internationally respected fiscal management”, raised hopes for a policy change.

“But for this rise to be permanent, we need to appoint a cabinet, clarify the names of those involved in economic management and announce a new economic roadmap, if any,” Tursk said. said Mr.

Pre-election optimism about a reorientation of economic policy has all but vanished as Erdogan’s strong first-round performance roiled polls and set him up for 30 years in office.

Thomas Gillette, Sovereign Ratings Director at Scope Ratings, said partial adjustments to the policy mix were still possible, but would require consistent planning and execution to be effective.

“But Erdogan has shown little sign of such a U-turn,” Zillet said.

Reported by Karin Strohekker and Libby George in London; additional reported by Kanan Sevgiri in Gdansk; edited by William McLean

Our standards: Thomson Reuters Trust Principles.