Turkish President Recep Tayyip Erdoğan signaled on Saturday that his newly appointed government would return to more traditional economic policies when he appointed Mehmet Şimşek to his cabinet to tackle the cost of living crisis and other problems.
Analysts said Şimşek’s appointment as treasury and finance minister could pave the way for interest rate hikes in the coming months, a marked shift in Erdoğan’s longstanding policy of cutting interest rates despite high inflation.
After winning a presidential run-off last week, Erdoğan, 69, who has ruled for more than two decades, began his new five-year term by calling on Turks to put aside differences and focus on the future.
High-ranking officials attended Erdoğan’s inauguration ceremony at the presidential palace in Ankara from countries and international organizations, including NATO Secretary-General Jens Stoltenberg, Venezuelan President Nicolas Maduro, Hungarian Prime Minister Viktor Orban and Armenian Prime Minister Nikol Pashinyan.
The apparent shift in economic policies comes as many analysts say Türkiye, a large emerging market, is heading for turmoil due to the depletion of foreign reserves, expansion of the state-backed protected deposit scheme and incorrect inflation expectations.
Şimşek, 56, was highly appreciated by investors when he held the positions of finance minister and deputy prime minister between 2009 and 2018.
Analysts say that after previous instances in which Erdoğan turned to traditional politics and quickly reverted to his interest-cutting methods, much will depend on how independent Şimşek will be.
Simşek is likely to enjoy a strong mandate early in his term, but he will soon face very rapid political headwinds to implement policies as local elections approach in March 2024.
Some analytics says that appointing Şimşek, sends a domestic message for the local Kurds in eastern Türkiye, as Şimşek came from that region as he also a Kurdish decedent.
Erdoğan’s economic program since 2021 has emphasized monetary stimulus and targeted credit to boost economic growth, exports and investment, putting pressure on the central bank to act and undermining confidence in its independence.
As a result, inflation hit a 24-year high of 85% last year before easing.
The lira has lost more than 90% of its value in the past decade after a series of collapses, the worst of which occurred in late 2021. It fell to a new record low, falling to 20 to the US dollar after the run-off on May 28.
Erdoğan, Türkiye’s longest-serving leader, won 52.2% of the vote in the May 28 runoff.
The result was contrary to the expectations of most opinion polls, which predicted that economic pressures would lead to his defeat.
The new mandate would allow Erdoğan to pursue policies that are increasingly authoritarian and have divided the NATO member, but would also allow him to strengthen Türkiye’s position as a regional military power.
At the swearing-in ceremony at the presidential palace, Erdoğan spoke in a conciliatory tone.
“We will contain the 85 million people, regardless of their political views… Let’s put aside the resentment of the election period… Let’s look for ways to reconcile,” Erdoğan said.
“Together we must look forward, focus on the future and try to say new things… We must try to build the future by learning from the mistakes of the past”.
Erdoğan pledged, while taking the presidential oath earlier today, to protect Türkiye’s independence and territorial integrity, abide by the constitution and follow the principles of Mustafa Kemal Atatürk, the founder of the modern secular republic.
Erdoğan became prime minister in 2003 after his Justice and Development Party won elections in late 2002 in the wake of Türkiye’s worst economic crisis since the 1970s.
In 2014, he became the country’s first popularly elected president and was elected again in 2018 after gaining new executive powers for the position of president in a 2017 referendum.
The May 14 elections and the May 28 run-off were crucial given the opposition’s confidence in ousting Erdoğan and changing many of his policies, including proposing sharp increases in interest rates to counter inflation, which hit 44% in April.
In his speech after the victory, Erdoğan said inflation was the most pressing issue for Türkiye.
