With no explanation from Turkish President Recep Tayyip Erdogan’s government, Finance Minister Berat Albayrak said on Sunday he was resigning “for health reasons,” the second surprise departure of a top economic policymaker in two days after the central bank chief was ousted.
The upheaval follows a 30% slide in the lira to record lows this year amid the coronavirus pandemic as investors worried about falling forex reserves and the central bank’s ability to tackle double-digit inflation.
Albayrak’s resignation, announced in an Instagram statement confirmed by an official, came a day after father-in-law Erdogan replaced the central bank governor with a former minister whose policies are seen to be at odds with Albayrak.
“I have decided that I cannot continue as a minister, which I have been carrying out for nearly five years, due to health problems,” the statement said. Albayrak became finance minister two years ago after serving as energy minister.
Two sources at the presidency could neither confirm nor deny the statement but a finance ministry official confirmed its authenticity.
Albayrak, 42, was appointed energy minister in 2015 and shifted to finance after Erdogan was re-elected with sweeping new executive powers in 2018.
During his tenure at finance, Turkey’s economy was hit by two bad slumps, double-digit inflation and high unemployment. The lira has lost around 45% against the US dollar since his appointment and is the worst performer in emerging markets this year.
Erdogan, who appointed former Finance Minister Naci Agbal as the new central bank governor on Saturday, would need to approve the resignation.
— Recognising failure —
With the resignation of Albayrak and the dismissal of the central bank governor, the Turkish president has officially recognised the failure of his economic equation, which ended with an exceptional decline in the exchange rate of the lira and the blockage of the prospects of loans and other monetary tools to reform the financial and economic situation in the country.
The shock departure of Turkey’s top two economic policymakers over the weekend sets the stage for an interest rate hike and other moves to halt a record slide in the lira, analysts said, even as political questions hang over the leadership overhaul.
Agbal “might do a better job in getting approval for a rate hike” given his former experience with the government and ruling party, said Selva Demiralp, director of the Koc University-TUSIAD Economic Research Forum.
“Absent a rate hike, I am afraid the financial crisis will only get worse with the depreciation in the lira that increases the external debt, triggering bankruptcies.”
On Sunday, Agbal held a meeting with senior executives in the banking sector to discuss macroeconomic expectations and exchange views on policy, said a sector official, speaking on condition of anonymity.
On Monday, Agbal said the central bank would focus on lowering high inflation and decisively use all policy tools in a statement that one currency trader described as “market-friendly.”
“Agbal has the power and closeness to go and convey the situation directly to the president,” said a senior official in Erdogan’s AK Party.
“It is a difficult post, but steps to stop the rapid rise in the exchange rate must be taken.”
But Win Thin, global head of currency strategy at Brown Brothers Harriman, said “Turkish political risk jumped over the weekend,” citing Albayrak’s resignation statement.
“The reason given was health reasons, but there is obviously more to this than meets the eye,” the New York-based analyst said.
Analysts at Goldman Sachs and TD Bank expect a monetary tightening of at least 600 basis points from a 10.25% policy rate now.
The lira jumped as much as 4% against the dollar on Monday, its biggest intraday rally in several months. As recently as Friday it touched a new all-time low after shedding 30% this year, the worst-performing emerging market currency so far in 2020.
The plunge has been driven by concerns over the central bank’s depleted foreign reserves, costly state interventions in foreign exchange markets, negative real rates and the risk of Western sanctions over Turkish foreign and defence policies.
This article has been adapted from its original source.
