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Erdogan sacks central bank chief for raising interest rates

Naci Agbal has been dismissed four months after his appointment because of disagreements with Erdogan, once again demonstrating how little independence the economic institution possesses
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REUTERS/Servicio de Prensa Presidencial vía AP  -   The President of Turkey, Recep Tayyip Erdogan

The economist and politician Sabah Kafcioglu is the new head of the Central Bank of Turkey. This was announced in the Official State Gazette, surprising economists and investors. Kafcioglu, a former AKP MP with little experience in the sector, gets the job after the dismissal of the previous head, Naci Agbal. Agbal was appointed only four months ago and was the third governor of the central bank in less than two years. The reason for his dismissal was the increase in the interest rate from 17 to 19 per cent. Agbal's predecessor, Murat Aysal, was sacked in November for failing to act against the fall of the Turkish lira, a volatile currency that has suffered multiple crashes. However, with Agbal at the helm of the central bank, the Turkish currency managed to regain some of its lost value.

Naci Agbal's economic policies had been well received by markets and financial analysts. However, Erdogan has always been against interest rates as he believes they generate inflation, while the vast majority of economists argue the opposite. The new head of the Central Bank, Kafcioglu, is in line with Erdogan's ideas. This dismissal shows the constant interference of the president in economic matters that makes the directors of this institution unable to work freely. 

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REUTERS/UMIT BEKTAS - Naci Agbal, former Governor of Turkey's Central Bank

In addition to the dismissal, the daily Yeni Safak has accused Agbal of being part of a conspiracy. "In whose name did you carry out this operation," the Turkish daily said. The Islamist and nationalist daily is linked to former finance minister Berat Albayrak, Erdogan's son-in-law. Albayrak resigned days after Agbal's appointment because, like the president, he does not share Agbal's policies. 

Although Turkey's economy has grown in 2020 during the coronavirus pandemic, the country suffers from a major crisis, both in terms of external problems and internal instability. Despite economic growth, the Turkish lira lost 25% of its value last year. This made 2020 the eighth year of decline, according to Bloomberg. Also, in the same year, its value plummeted to historic lows: in May, the currency's value fell to 7.25 units against the dollar.

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REUTERS/UMIT BEKTAS - Headquarters of the Central Bank of Turkey in Ankara

Turkey has arrived at this precarious situation because of several factors. Firstly, Erdogan's ideas, which run counter to those of economists, are having a detrimental effect on the Turkish economy. In addition, his authoritarian decisions, such as not letting the Central Bank work freely, do not allow experts to try to get out of the crisis. A key domestic event that created a lot of instability both politically and economically was the failed state attempt in July 2016. The convulsive situation in the Middle East such as the war in Syria or the fight against Daesh also influences the country's economy as it has to manage military, security and refugee crisis expenses.

These circumstances, together with Erdogan's bad relationship with some Western countries such as the United States, have caused the lira to suffer a constant slump. In 2018, the tension between Donald Trump and Recep Tayyip Erdogan culminated in the former US president's decision to double tariffs on some Turkish products, further aggravating the lira crisis. "I just authorised doubling tariffs on steel and aluminum with respect to Turkey as their currency, the Turkish lira, falls rapidly relative to our very strong dollar," tweeted former President Trump. 

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AP/EMRAH GUREL - Currency exchange office on Istiklal Street, Istanbul's main shopping street

The European Union has also imposed sanctions that have directly impacted Turkey's fragile economy. The refugee crisis has caused moments of high tension between Ankara and Brussels. Erdogan's expansionist aspirations to annex Syrian territory have also cost him criticism from the EU and arms exports have been suspended. The latest sanctions from Brussels against Turkey stem from its actions in the eastern Mediterranean. The Turkish oil company TPAO carried out unauthorised operations in waters near Cyprus and Greece. Erdogan assured Turkish media that "any decision on sanctions against Turkey does not concern him". He added: "The EU has imposed sanctions since 1963 on Turkey. They have never behaved honestly; they have never kept their words. We have been very patient."