Central bank changes wreak havoc on Turkish economy

Naci Agbal's departure has caused instability in the Turkish economy, while criticism from international investors is mounting
Turkish President Recep Tayyip Erdogan

PHOTO/Presidential Press Office  -   Turkish President Recep Tayyip Erdogan

Days after the dismissal of the former head of the Turkish Central Bank, Naci Agbal, the situation of the Turkish economy continues to worsen. On Monday the Turkish lira plummeted by up to 15%, while the Istanbul stock exchange lost a tenth of its value. In addition to the economic turbulence within the country, Erdogan's decision has also caused criticism among economists and investors. International financial agency Moody's considers the dismissal to be detrimental to bank funding as it damages investor confidence. "Without the credibility of Central Bank, access to the market is likely to become more costly again," the economic agency said. The financial sector also believes that the frequent layoffs in this institution affect the economy. “Constant changes of the economic team does not bode well for policy credibility,” said Yerlan Syzdykov, Amundi’s global head of emerging markets. The new head, Sahap Kavcioglu, is the fourth governor of the central bank in less than two years. For years, due to Turkey's economic crisis, investors have pointed to the country as one of the most vulnerable markets to any changes in the global economy. 

Nevertheless, Erdogan has called on international investors to have confidence in Turkey's strength and potential. "In the coming period, we will achieve a much better position by growing the Turkish economy on the basis of investment, production, employment and exports," the Turkish president said. Kavcioglu has also begun to lay the groundwork for his new position at the Central Bank. "The Central Bank of the Republic of Turkey (CBRT) will continue to use monetary policy tools effectively to achieve a permanent decline in inflation," he said in a statement.

El exgobernador del Banco Central de Turquía, Naci Agbal
PHOTO/REUTERS - The former governor of Turkey's Central Bank Naci Agbal

Contrary to Erdogan's optimistic statements, the population lives in uncertainty and suspicion. "There is no confidence in this country. The dismissal of the Central Bank governor adds to the lack of confidence," a tourism worker in Istanbul told Arab News. The Turkish opposition has also denied the president's predictions. “We are on the verge of a balance of payment crisis," declared Iyi party leader Meral Aksener. Politics has also spoken out on the replacement of the head of the Central Bank. “The ridiculous steps (he) take(s), the unqualified people (he) appoints are not enough,” Aksener added. Durmus Yilmaz, head of the agency between 2006 and 2011, has also criticised the president's decision. "Having four governors in so few months and, with it, changing the direction of monetary policy so many times, sends a negative message", he says. 

Sede del Banco Central de Turquía se ve en Ankara, Turquía
PHOTO/REUTERS - Headquarters of the Central Bank of Turkey is seen in Ankara, Turkey.

This economic earthquake in Turkey has already reached other international companies. The instability has spread to BBVA, as Turkey is its third largest market. The Spanish bank plunged 8% as the lira fell. Other foreign banks such as the French BNP, the Dutch ING or the Italian Unicredit have also suffered from this situation. 

La moneda turca se desplomó frente al dólar estadounidense después de que el presidente Recep Tayyip Erdogan despidiera al gobernador del Banco Central el fin de semana por subir los tipos de interés
PHOTO/AP - Turkey's currency plunged against the US dollar after President Recep Tayyip Erdogan fired the central bank governor over the weekend for raising interest rates.

This decision demonstrates once again the lack of independence of the Turkish central bank and the constant intervention of President Erdogan, whose economic ideas are highly criticised. Behind these measures could be Berat Albayral, Erdogan's son-in-law and former finance minister. This dismissal also demonstrates once again the Turkish president's turn towards authoritarianism. In the same weekend Erdogan fired the head of the Central Bank over disagreements, abandoned the Istanbul Convention against male violence and had a pro-Kurdish MP arrested.