New appointments are not enough, the system must change to save the economy - DEVA Deputy Chair
The new appointees to Turkey’s Central Bank and Treasury and Finance Ministry should not be assessed by who they are, but how they were appointed, deputy chairman and head of economy and finance policy for the Democracy and Progress Party (DEVA) İbrahim Çanakçı, told Ahval in an interview.
“Turkey’s issue is not with individuals, the problem lies with the system and decision-making processes, a matter of mentality,” said Çanakçı. “As long as this system and Mr President’s method of governance remain the same, it won’t be possible to resolve severe issues.”
Çanakçı worked in key government institutions including the State Planning Organisation (DPT) and the Banking Regulation and Supervision Agency (BDDK), before joining DEVA, founded by former senior government figure Ali Babacan, who left the ruling Justice and Development Party last year, saying it had lost its way.
DEVA’s deputy chairman also served as undersecretary to the treasury between May 2003 and Aug. 2014, working closely with Babacan in his then role as deputy prime minister responsible for the economy. Soon after, Çanakçı became a member of the IMF Executive Directors Board, and in 2015 he joined the board of directors for the Islamic Development Bank (IsDB), before leaving his duties to take up Babacan’s invitation to join the DEVA as a founding member.
Çanakçı spoke to Ahval about the events that saw Treasury and Finance Minister Berat Albayrak resign and Central Bank Governor Murat Uysal removed from his post.
The former treasury official questioned why it took almost 30 hours to officially confirm the resignation of Albayrak, who is President Recep Tayyip Erdoğan’s son-in-law, an opaque period that triggered uncertainty in the financial markets.
“A minister in charge of Turkey’s gargantuan treasury announcing his resignation like this, the resignation being accepted 30 hours later, are signs that Turkish public administration systems have failed. The state has failed in transparency, accountability, and all other aspects you can think of,” Çanakçı said. “This resignation in this manner is completely unacceptable for the state traditions.”
Billions of dollars’ worth of transactions occurred in currency, stock and bond markets between Albayrak’s resignation and the time it was definitively confirmed, he continued. “Resignations reflect on the markets. Such a decision must be made in a transparent way, accessible to all, allowing all to take a position.”
Even ordinary companies publicly announce their sales, partnerships, change in management on the Public Disclosure Platform (KAP), Çanakçı said. “This shows that the state is not being governed even as well as a public company, and that chaos and irregularities have peaked.”
The deputy chairman gave the previous example of the Borsa Istanbul Stock Exchange (BİST), where rumours that its chairman had resigned were renounced immediately, even though the speculation came after trading ended. “This is how it should be. Because the BİST may be closed, but there are global stock markets in operation.”
Albayrak’s departure followed the replacement of Central Bank Governor Murat Uysal by former finance minister Naci Ağbal, triggering a wider government reshuffle. Cevdet Yılmaz has now taken over new Treasury and Finance Minister Lütfi Elvan’s previous role as chair of the parliamentary planning and budget commission. This, in turn, left a vacancy as deputy chairman for foreign relations, which has in turn been filled by Efkan Ala. All four are prominent AKP members who have served as ministers in previous governments.
On the question of whether the return of experienced cadres previously pushed out by Erdoğan represented a shift in party management and governance, Çanakçı said:
“I don’t think so. The two aspects here are the system, and the understanding of governance. There’s not much to say on the character of the experienced statesmen appointed to the central bank and finance ministry. These appointments may even lead to markets giving them the benefit of the doubt. But the important issue is that this system is not working.”
There is growing speculation that the executive presidential system will be modified, with the president no longer handling leadership of both the ruling party and the country, Çanakçı said. “However, this would require a constitutional amendment. And even then, it wouldn’t have a positive impact if the understanding (of governance) doesn’t change.”
Prior to Erdoğan being granted extended presidential powers in 2018, “the understanding was the same,” Çanakçı continued. “He would constantly influence the government and the prime minister, Erdoğan always had the last word, even though he didn’t yet have the authority to.”
There is no sign of such a shift away from the one-man regime, according to Çanakçı, who believes that a president should inspire trust and end political interventions. The central bank’s current situation is caused by the pressure put on it by the president’s unorthodox belief that “high interest rates are the cause, and inflation is the effect”. Former governor Murat Çetinkaya was removed from office because he didn’t abide by that, Çanakçı said.
“Now, we can’t say that this thesis has been retired. The president still argues the same thing. Will he allow the bank to seriously raise interest rates, which is inevitable under current economic conditions?”
Whether the reshuffle translates into relief for the economy depends on whether Erdoğan will leave space for the new appointees to take action, he said.
“Does the president believe in an independent central bank? There is no light at the end of this tunnel now,” he said. “It’s the same irresponsible debt policy and incompetent administration regarding public finance, treasury and the budget.”
Turkey’s budget deficit has increased fivefold in five years, with the biggest factors being the lack of transparency in public spending, public-private cooperation projects, and the foreign currency guarantees provided to these projects, Çanakçı said. Meanwhile, Turkey’s sovereign wealth fund has “turned into a giant black hole outside of the budget,” he said, and massive infrastructure projects like Kanal Istanbul, an artificial waterway to the north of the megacity, are virtually planned to “turn public finances upside down.”
Without a change in mentality, there will not be any economic improvement, and while the appointments in the team have made a moderate difference, Çanakçı said he was not expecting a lasting impact. “When there is a change, markets and the public will have relatively higher expectations. Add to that, developmentS on the coronavirus vaccine and the U.S. elections drawing to a conclusion. But there are no signs that the understanding of governance will shift.”
“There is an urgent need for radical change in system and in understanding – in all aspects, from the economy to the media, from the judiciary to foreign policy.”
Recent comments by Erdoğan, who told AKP parliamentarians that he would “not refrain from implementing the correct (economic) prescriptions, however bitter they may be,” have raised concerns that tax hikes and IMF-style austerity policies may soon be on the horizon.
Erdoğan said he would lower inflation to single digits, but added: “The necessity to keep interest rates at the level of inflation is making it difficult for us in our efforts to do so.” Despite being an apparent reiteration of his controversial view that high interest rates cause inflation, these comments can also be read as the president unwillingly approving a significant interest rate hike for the upcoming Nov. 19 meeting of the Central Bank Monetary Policy Council (PPK) - a permission slip for new governor Ağbal.
Erdoğan’s bitter pill statement saw the lira rise from a historic low of more than eight to the dollar. it would not be completely wrong to assume that the government is looking to implement an IMF program, without actually making a deal with the IMF.