ANKARA: In an overnight decision on Dec. 2, Turkish President Recep Tayyip Erdogan appointed Nureddin Nebati as the country’s new minister of treasury and finance in place of Lutfi Elvan, adopting orthodox policy rather than monetary easing.
Elvan, having disagreed with Erdogan over the decrease of interest rates, reportedly stepped down from the post voluntarily. He was a figure acclaimed by market players despite fluctuations in the country’s economic management.
How the new minister, known as a loyalist, will be received by investors remains to be seen.
Plummeting to record lows against foreign exchanges, Turkey’s beleaguered lira has lost about 45 percent of its value so far this year, toppling household savings.
On Nov. 30, the lira plunged as low as 14 to the US dollar, and hit 15 to the euro, rendering it the worst performing currency of all emerging markets. The Central Bank of Turkey quickly intervened by selling substantial amounts of foreign exchange reserves to prop up the lira, Bloomberg reported.
Nebati, who served three years as a deputy finance minister before taking on this role, became the country’s third finance minister in just over a year.
He is known as a bureaucrat and a former businessman close to Erdogan, and he ardently supports keeping rates low in the face of soaring inflation, as they both believe that high interest rates result in high inflation.
However, according to Wolfango Piccoli, co-president of Teneo Intelligence in London, the appointment is expected to pave the way toward considerable spending in the months ahead to boost the government’s ratings ahead of the 2023 elections.
“Fiscal discipline, which has traditionally differentiated Turkey from most emerging markets, is soon likely to become history,” he told Arab News.
Experts anticipate that the economy could be accelerated through cheap credits.
Piccoli believes that the government will announce two support programs to prop up exports and the job market, along with additional initiatives to be disclosed in the months ahead in order to consolidate the government’s position.
“It is likely that the government can use its funds to provide loans to businesses as well,” he added.
The new minister, coming from a political science background in academia, took part in the youth organizations affiliated with Erdogan’s Justice and Development Party, or AKP.
“My God, make it easy, do not make it difficult. My God, make its outcome useful. Give us truth in our work, make us successful,” Nebati tweeted upon his appointment.
Before becoming a AKP lawmaker between 2011-2018, he was also an active figure on the board of the pro-government Islamist business association, MUSIAD. He is also known as a figure very close to Erdogan’s son-in-law, Berat Albayrak.
“In the recent past, former minister Lutfi Elvan had hinted that improvements in the current account balance should be handled with structural changes in the production structure rather than with rate cuts,” said Selva Demiralp, a professor of economics at Koc University in Istanbul, and a former economist at the Federal Reserve.
“Meanwhile, the government insists on the argument that rate cuts will be used as a way to stimulate exports and reduce imports. With the appointment of the new minister, it looks like there will be better coordination between monetary and fiscal policy in keeping interest rates low,” she told Arab News.
In a recent interview wtih state-run broadcaster TRT, Erdogan said that more interest rate changes should be expected in the coming period and Turkey would turn a surplus in 2022, while he warned that there is no “turning back” from the new policy path.
“In this way, there will be an improvement in exchange rates ahead of the elections,” he said.
According to the latest official data on Tuesday, the Turkish economy grew by 7.4 percent year-on-year in the third quarter, thanks to exports, manufacturing and retail demand.
In another speech to Parliament last month, Erdogan hinted at a forthcoming change of finance minister, saying “I’m sorry to our friends who defend (high) interests but I cannot and will not walk the same path as them.”
Elvan was the only one who did not join the crowd in applauding these remarks.
According to economist Demiralp, more rate cuts will push deposit rates further into negative territory, which may bring another wave of dollarization and increase the pressures on the lira.
“Thus, it would limit the banks’ ability to transmit further rate cuts into their borrowing and lending rates. When the monetary transmission mechanism comes to a halt, the government may reconsider its easing cycle,” she said.
On Thursday, the central bank governor met with domestic and international investors and economists via videoconference.
Since September, the central bank has cut rates by 400 basis points to 15 percent against inflation that reached about 20 percent.
The recent steps taken by Ankara to mend ties with its previous regional competitors are also seen as part of a larger attempt to reap economic gains and attract investments from such overtures.