LONDON (Reuters Breakingviews) – Losing one senior economic policymaker is unfortunate. To lose two in the same weekend looks deliberate. That’s the situation in Turkey, where President Tayyip Erdogan installed a new technocrat central bank governor on Saturday while his son-in-law and Finance Minister Berat Albayrak quit the following day. It’s a sign of the country’s poor economic management that the departures are positive news.
It’s too late to worry about the independence of Turkey’s central bank. By the time he was ousted, Murat Uysal had been governor for just 16 months. At least the new governor, Naci Agbal, has a closer relationship with Erdogan and his AK Party. Albayrak, who had clashed with Agbal and is a divisive figure in the party, announced his resignation on Instagram on Sunday. Provided that his successor is not another family member, economic policy is likely to improve. The new team might even be able to exert some influence over the president, who insists that high interest rates cause inflation.
A change of direction is overdue. Turkey’s widely disputed official inflation rate is 12%, more than double the target and higher than the benchmark interest rate of 10.25%, meaning the real cost of borrowing is negative. The central bank has burned through its foreign exchange stocks to support the lira: net reserves fell to $17 billion last month, the lowest since 2004. Even so, the exchange rate had hit record lows of 8.5 against the U.S. dollar last week, before the reshuffle prompted a 4% bounce.
Donald Trump’s election defeat means Turkey also faces a harsher international climate. One of Albayrak’s now-redundant strengths was that he was close to the outgoing U.S. president’s son-in-law, Jared Kushner. Erdogan and Trump also appeared to see eye to eye. Their relationship may explain why the United States never imposed penalties over Turkey’s purchase of Russian missiles and why a U.S. probe into sanctions violations by state lender Halkbank faced delays.
President-elect Joe Biden is likely to have less patience with Turkey’s antics, such as its clashes with Greece over gas exploration in the Mediterranean. The prospect of a tougher geopolitical environment may at least help the new economic team take some overdue steps at home.