After Recep Tayyip Erdogan embarked on a robust defence of his pursuit of low interest rates in a speech to Turkey’s ruling party MPs two weeks ago, he was met with rapture from all those present — except one.
His finance minister, Lutfi Elvan, who had made clear his growing discomfort at the president’s idiosyncratic views on the economy, held his hands in his lap as those around him applauded.
Elvan’s resignation on Wednesday evening, in the midst of a currency crisis, came as little surprise after weeks of rumours he was on the way out.
But analysts said his replacement by an Erdogan loyalist with close links to the president’s son-in-law, the former finance minister Berat Albayrak, underlined the extent to which control of the country’s $795bn economy was now in the hands of one man.
“Erdogan is now fully in charge,” said Turgut Kisinbay, an economist at Invesco, the asset manager. “In the past, Erdogan delegated economic policy to ministers, the central bank, institutions and eventually his son-in-law. Finally, I think it’s just him now.”
Elvan, a bureaucrat turned politician, was welcomed by Turkey’s business community when he replaced Albayrak as finance minister in late 2020. His predecessor’s tenure, defined by the decision to spend tens of billions of foreign currency reserves in an ultimately futile bid to defend the lira, drew strong criticism from Turkish opposition parties and foreign investors.
Though detractors accused Elvan of lacking backbone, business executives and government officials say he privately advocated for fiscal discipline. He also made the case for a more orthodox monetary policy even as Erdogan, an ardent opponent of high interest rates, pushed the central bank to repeatedly lower the cost of borrowing despite inflation running at an annual rate of almost 20 per cent.
By contrast, his successor, Nureddin Nebati, last week published a 12-part Twitter thread defending Erdogan’s determination to lower interest rates despite warnings that it could usher in runaway inflation and financial instability. The lira fell as much as 4 per cent following his appointment.
As he was sworn in on Thursday, Nebati echoed the president’s narrative by declaring that Turkey was embarking on a mission for economic independence. “Our priority will be investment and employment, not high interest rates,” he said.
Emre Peker, an analyst at the Eurasia Group consultancy, said the administration would now be “unequivocally aligned” behind the president’s economic policy, which would “prioritise investments and exports driven by low rates over price stability, despite the cost of a weak lira”.
Nebati, who hails from a landowning family in the south-east province of Urfa, with his brothers established a company importing clothing as well as producing its own garments for export.
He is known as a conservative and is a member of several religious foundations linked to Erdogan’s Justice and Development party (AKP). In 2013, he proposed closing Turkey’s 56 state-run brothels, a suggestion rejected by the ruling party.
One Turkish businessperson who knows him well described Nebati as having “a good heart” and “devoted” to the AKP and to Erdogan.
Nebati’s perceived links to Albayrak, who is married to Erdogan’s daughter Esra and who was once viewed as a possible successor as president, has prompted renewed speculation that the leader’s son-in-law continues to wield influence behind the scenes.
Several others with ties to Albayrak have been promoted to senior economic positions this year. They include Erisah Arican, his former thesis supervisor who was made de facto head of the country’s wealth fund, Sahap Kavcioglu, the central bank governor, and Mehmet Mus, the trade minister.
One senior Turkish banker said Nebati’s appointment, which came just hours after the central bank resumed Albayrak’s contentious policy of currency intervention, may lead to a return to “a more strict defence” of the lira that could reverse a recent improvement in the country’s foreign currency reserves.
Others suggested Nebati would use publicly owned banks as a tool to try and soften the impact of rapidly rising inflation and falling living standards by ramping up cheap lending to households and businesses.
“The new minister is more likely to use state banks’ balance sheets for defending the Turkish lira and aggressive credit growth,” said Okan Akin, a credit analyst at AllianceBernstein, the asset manager.
“However, given the state banks’ profitability is still suffering from the implications of a similar policy in 2020 during minister Albayrak’s tenure, he would need to inject capital to state banks first.”
Others said it was largely meaningless who occupied the finance ministry at a time when the only voice that mattered was that of Erdogan’s.
“It’s not that relevant who holds the post any more,” said Maya Senussi, a senior economist at Oxford Economics, the consultancy. “They can do little to influence policy.”
Additional reporting by Funja Guler in Ankara