Turkey's new finance minister has offered a few words to reassure skeptical markets amid nepotism allegations. The lira, already under strain, has taken a further beating since Berat Albayrak assumed the post this week.
As the lira falls precipitously against the euro and the dollar, stocks plummet, and inflation soars, the man put in place to steward Turkey's economy earlier this week is seeking to reassure domestic markets, but observers remain highly skeptical.
The lira has dropped over 6 percent against the dollar since Berat Albayrak — the 40-year-old husband of President Recep Tayyip Erdogan's eldest daughter, Esra — began leading Turkey's newly combined Treasury and Finance Ministry on Tuesday, falling sharply to reach a record low of 4.9767 against the dollar late Wednesday.
By late Thursday, it had recovered slightly, to 4.82 to the dollar and 5.63 to the euro. However, currency exchange offices in Istanbul's historic Grand Bazaar weren't taking risks. They stopped selling dollars on Thursday morning because of the increased volatility, the daily newspaper Sozcu reported.
The bourse has also taken a hit. The main share index fell half a percent, adding to a 5 percent drop on Wednesday, and bringing its losses this year to more than 20 percent. Banking stocks showed little change on Thursday after shedding over 9 percent on Wednesday — their worst day in five years.
Inflation, which the Treasury and Finance Ministry has pledged to reduce to 5 percent, is another problem that does not look likely to be resolved soon. Observers have expressed concern that Erdogan underestimates the dangers of inflation, which topped 15 percent in June. And the president, who was granted expanded powers after being re-elected in June, does indeed appear hostile to the idea of raising interest rates, calling the notion "the mother and father of all evil," and seeking to decrease borrowing costs to keep credit flowing to the construction sector.
'Like never before'
The novice treasury and finance minister does indeed appear to have a tough task before him. Albayrak has already called bringing inflation under 10 percent his "fundamental priority." However, observers have expressed concerns that has father-in-law may have too much sway over him.
"The changes to the governance of the central bank suggest that its resolve to tighten monetary policy to take the heat out of Turkey's economy, such as it is, may weaken rather than strengthen in the coming months," the ratings agency Moody's reported.
Appointed by Erdoganon Monday, the businessman-cum-politician Albayrak has pledged to not allow the executive branch undue influence — and even criticized the idea that the prospect could be raised.
"The independence of the central bank and its decision-making mechanisms cannot be a subject of speculation," he told the state-run Anadolu news agency on Thursday. "One of the main aims of our policies in the new period is a central bank that is effective like never before," Albayrak said.
Observers have questioned why, when filling the post, the president overlooked such market-friendly pragmatists as former Deputy Prime Minister Mehmet Simsek and Naci Agbal, who had served as his finance minister until this week, rather than looking to the Energy Ministry for his economy czar. Albayrak had served as Erdogan's energy minister since 2015, joining a Cabinet stacked with the president's allies a few months after beginning his career in politics by winning a seat in the National Assembly.