Turkey: the lira falters after Erdogan appointed a loyal official with no economic training as finance minister

Turkish President Recep Tayyip Erdogan in Istanbul (Photo: REUTERS / Murad Sezer) (MURAD SEZER /)

Turkish President Recep Tayyip Erdogan on Thursday appointed Finance Minister a faithful with no economic training – defender of his theories of reducing interest rates despite high inflation- replacing a supporter of a more orthodox monetary policy.

The appointment of Nureddin Nebati, until now Deputy Minister of Finance, replacing the holder of the portfolio, Lütfi Elvan, who asked to be released from his obligations, did not generate confidence in the lyre, which is still in levels of minima against the dollar and the euro after devalue almost 30% in the last month.

In his first address upon taking office, Nebati promised to continue the low-rate monetary policy, repeatedly demanded by Erdogan, although economists believe that it is the cause of the inflationary escalation in the country. “Our top priority is not high interest rates but stimulate increased investment, production and exportNebati said.

The currency market hardly seems to have taken notice of the ministerial change, since the lira has continued to oscillate around 15.3 units per euro and 13.4 per dollar, only slightly above the all-time low of 15.5 and 13.6, respectively, set last Tuesday.

The Turkish Central Bank followed Erdogan’s wishes and lowered its interest rate by one point in November, to 15%, for the third time since September, despite the fact that inflation is close to 20% per year, four times higher than the Executive’s initial objective.

The Turkish press had been speculating about the resignation of Lütfi Elvan, since Erdogan proclaimed two weeks ago that he would not be with those who defend a rate hike.

The appointment of Elvan in November 2020, replacing Erdogan’s son-in-law, Berat Albayrak, succeeded in ending a continued devaluation of the lira and stabilizing the currency, with certain ups and downs, around 10 units per euro, until last September, when it began a rapid decline.

Elvan was an experienced minister, who did not share the fantasy about lowering interest rates. His successor will have to be loyal to the Palace. Erdogan only chooses those who are loyal. The new minister does not have any training in economics or finance, “he told the agency. EFE the economist Mustafa Sönmez.

One US dollar bill versus Turkish lira bills (Photo: Reuters)
One US dollar bill versus Turkish lira bills (Photo: Reuters) (MURAD SEZER /)

Nebati, 57, studied Political Science, received his Ph.D. on the Islamist roots of the Justice and Development Party (AKP), founded by Erdogan in 2001, and He is a leading member of several foundations in the field of religious nationalism. His first tweet upon being appointed repeatedly invoked God begging for “ease” and “ability” to assume his role.

“With him, political Islam has planted its flag in the Ministry of Finance,” he commented on the opposition network. Halk TV the former minister of tourism Bahattin Yücel.

Neither did the announcement by the Central Bank, made on Wednesday, to intervene in the currency markets to correct exchange rates. “Not healthy” seems to have influenced the value of the Turkish currency too much, since the initial rise of 10% was canceled with new losses in the afternoon of yesterday and during the day today.

The Bank is not selling its reserves but is selling futures, that is, it guarantees the lira buyer a definite change at a later date, assuming possible losses. But I am afraid that private banks are not very interested in acquiring these futures ”, Sönmez evaluated the agency’s strategy.

During a video conference with local investors, the governor of the Central Bank, Sahap Kavcioglu, said this Thursday that the intervention aims to end “the fragility of the currency” and expressed his hope that the change will stabilize on its own.

He also defended that The low interest rate policy stimulated local investment and employment in recent months and ensured that positive results would be seen in the first half of 2022.

Kavcioglu judged “temporary”The strong price rises in recent weeks and pointed to the surplus of the balance of payments in August and September, relying on the rise in exports to restore the Turkish economy.

However, the fall in the lira makes imports of energy and raw materials, vital for Turkish industry, more expensive, which translates into a narrow profit margin, despite the fact that exports between January and October have increased by 34% compared to the same period last year.

The Türk-Is union denounces that the minimum wage, which in Turkey is paid by 42% of all employees, barely gives to live due to the loss of purchasing power due to inflation.

If in 2016 this salary still corresponded to more than 400 euros, has now fallen to 200 euros, despite the annual increases, which have not been able to offset the drop in the lira or inflation.

(With information from EFE)

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