Erdoğan’s New Cabinet & Turkey’s Economy

New Cabinet Appointments:

• Turkey’s President Recep Tayyip Erdoğan announced new additions to his cabinet.
• Erdoğan won re-election in May after a runoff in which he obtained just over 52% of the vote. In his presidential victory speech, Erdoğan stated that wrangling inflation is his foremost goal in this new term. 
• Making new appointments in the ministries of defense, foreign affairs, and treasury, Erdoğan’s choices consist mostly of experienced statesmen and close allies.
• Erdoğan’s new vice president, Cevdet Yilmaz, has held the position of minister in previous governments “and served as the first vice president in Türkiye following the transition to the presidential government system in the country.” He identified easing inflation and rebuilding communities damaged by February’s earthquakes as top priorities.
• Former Chief of General Staff of the Turkish Armed Forces Yasar Guler was nominated as the new minister of defense. He spearheaded Turkey’s invasion of Syria in 2019.
• Ali Yerlikaya is being promoted to interior minister. The former governor of Istanbul, Yerlikaya’s tasks will include managing recovery from the recent earthquake in the south.
• The ministers for health and culture were the only appointments to remain the same as the previous term.

Mehmet Şimşek & Economic Optimism:

• Erdoğan nominated former Merrill Lynch economist and banker Mehmet Şimşek to the top position in treasury and finance. 
• Şimşek directed Turkey’s recovery from the 2008 global financial crisis.
• Erdoğan and the Turkish central bank have been pursuing unconventional economic policies in response to the crisis, including raising salaries for public servants, offering families free gas, and refusing to raise interest rates. Experts have called his recent strategy “idiosyncratic,” stating that Erdoğan’s economic policies are the exact opposite of what economists traditionally recommend in this environment. 
• Many analysts suspect that Erdoğan’s selection of Şimşek reflects a strategic pivot toward more traditional economic policy and a recognition that public confidence in his ability to usher Turkey through the crisis is diminishing.
• Şimşek holds the perspective that Turkey must return to an economic “rational ground” in order to combat the cost-of-living crisis. He also argued that “rules-based, predictable” Turkish economy will thrive. 
• Simsek promotes conventional economics and, in turn, may raise interest rates in coming months, a reversed approach to Erdogan’s economic policy. 
• Yet, some believe that Erdoğan, whose government leans autocratic, may limit Şimşek’s independence, as Erdoğan has a history of firing officials with whom he disagrees.

Turkey’s Cost-Of-Living Crisis:

• The Turkish economy has been struggling with a cost-of-living crisis, in particular, during the past two years. 
• Inflation reached a two-decade high of 85.5% in October of 2022, with the lira decreasing 29% in value in the same year.
• Surging inflation, an imbalanced budget, and Erdoğan’s non-traditional economic policies all contribute to the country’s economic woes. 
• COVID-19 deeply impacted Turkey’s substantial trade and tourism industries, a hit that the economy was just beginning to recover from before February’s earthquake. 
• Turkey also faces approximately $185 billion loan payments that are largely denominated in foreign currencies, of which Turkey is short. Recognizing this risk, foreign investors have been steering clear of Turkish markets.