Erdogan has eye on local, global challenges with new Cabinet

Turkiye’s President Recep Tayyip Erdogan unveiled his new Cabinet on Saturday night during his inauguration ceremony, with the appointments providing some indication on the direction the new government is heading on the economy and foreign policy.

The fact that the new vice-president, Cevdet Yilmaz, has a background in economic governance may be an indication that the economy will be a priority as Erdogan embarks on his third decade at the helm of the nation.

Mehmet Simsek, an advocate of investor-friendly and orthodox economic policies, and viewed positively by the financial markets, was named as treasury and finance minister.

Simsek, a former economy chief and deputy prime minister between 2009 and 2018, will be responsible for restoring the confidence of the markets post-elections.

In his previous post, he urged for tighter monetary policy but was replaced by Berat Albayrak, Erdogan’s son-in-law.

Whether his presence in the cabinet will see a departure from the current unorthodox economic policies, with its low interest rates, remains to be seen. But his appointment is already an important signal to the markets that there will be some changes.

Rather than an abrupt shift in economic policy, gradual steps are expected to be taken in an environment where the lira is sliding to record lows against the dollar.

In his post-election speech, Erdogan said: “We are designing an economy focused on investment and employment, with a finance management team that has a global reputation.”

Turkiye’s economy expanded 4 percent in the first quarter of the year, remaining just above expectations.

Soner Cagaptay, senior fellow at The Washington Institute, told Arab News: “If he is also given some independence to adjust ultra-low interest rates, the Turkish economy can make a comeback. But I expect first a devaluation of the lira, which will make Turkiye very cheap for the tourists and affordable for the exports.”

“If Simsek is given enough flexibility, the markets will believe that he has the mandate to (do) what he has to do for restoring the Turkish economy,” said Cagaptay.

With reserves diminishing, some changes in economic governance in the short term are inevitable.

But how substantial and sustainable these changes will be in a centralized decision-making structure remain uncertain and depends on the new roadmap announced.

Experts believe that if Erdogan insists on keeping interest rates low rather than taking austerity measures ahead of local elections that are 10 months away, Simsek’s appointment would not result in much change to economic policy.

According to Wolfango Piccoli, co-president of London-based Teneo Intelligence, Simsek’s return would result in a partial re-adjustment of Turkiye’s current economic policy, while a dramatic U-turn embracing an outright conventional monetary policy approach remains unlikely.

“It is also unclear for how long Erdogan may tolerate a more pragmatic stance on the economic front, given the priority he assigns to the March 2024 local elections,” said Piccoli.

In the meantime, former intelligence chief Hakan Fidan joined the cabinet as the new foreign minister. Fidan is known for initiating rapprochement with multiple countries, especially Egypt and those in the Gulf.

“He is highly respected in Washington and he is seen as a reliable counterpart,” said Cagaptay.

“He had been also handling key international portfolios, especially Syria and Russia policies. His appointment is really significant. He is now in the driver’s seat.”

Cagaptay expects the new cabinet to be friendlier toward Western nations and less antagonistic with regional countries.

In late April, Fidan attended a meeting with his Russian, Iranian and Syrian counterparts in Moscow as part of a rapprochement process with the Bashar Assad regime.

Last year, the handshake between Erdogan and Egypt’s President Abdel Fattah El-Sisi on the sidelines of the World Cup in Qatar, was also believed to be the result of meetings between the two sides’ intelligence organizations and foreign ministries.

According to Cagaptay, Erdogan wants top-notch experts on economic and foreign policy, so that he can focus on domestic areas which require almost daily macro-management, including social issues and drafting a new charter.

“That he has saved parliamentary seats while forming his cabinet tells us he wants to quickly get to a referendum-triggering legislative majority,” he added.

Meanwhile, although Turkiye has already started the process of normalizing ties with Syria and the Assad regime through several high-level meetings under Russian mediation, the Turkish military presence in northern Syria is not expected to end soon.

But new moves for facilitating the safe return of Syrian refugees to their homeland might be taken to fulfil the pledges made by Erdogan during his reelection campaign.

The counterterrorism campaigns in northern Iraq and Syria are also set to continue in the light of the composition of the new cabinet.

Dalia Ziada, director of the Cairo-based MEEM Center for Middle East and Eastern Mediterranean Studies, believes that Fidan is the right man for the job at this particular time with Turkiye rising as a key regional player.

“He holds all the important cards and knows by practice the behind-the-scenes issues in Turkiye’s foreign policy,” she told Arab News.

“Fidan enjoys a deep understanding of the situation in the hotspots of the Middle East, ranging from Libya to Sudan and Syria, and he is the only Turkish official to continue to be part of the four-way meetings in Moscow that brought together senior officials from Turkiye, Syria, Russia and Iran in the past few months,” Ziada said.

According to Ziada, tangible progress on Turkiye’s foreign policy in Syria and the mediating role of Turkiye in the Russia-Ukraine conflict can be expected in the short run with Fidan’s active role in the foreign policy apparatus.

As Fidan has been the “behind-the-curtains” architect of the rapprochement in the past two years to fix broken ties with Egypt and Arab Gulf countries, Ziada thinks that his appointment may accelerate the reconciliation process between Turkiye and the North African country.

“This will consequently lead to mitigating the civil conflicts in Libya, facilitating the political solution process, and may eventually bring Libya to elections sooner than we think,” she said.

El-Sisi and Erdogan have agreed on “the immediate start of upgrading diplomatic relations, exchanging ambassadors,” Egypt’s presidency said in a statement last Monday.

Ziada added that Fidan’s background could enhance Turkiye’s relationship with the Arab Gulf countries.

“I won’t be surprised to see Fidan being involved in talks between Arab Gulf countries and Iran in the near future. In reverse, this will be reflected positively on Turkiye by increasing Gulf countries’ investments and thus enhancing the struggling Turkish economy,” she said.

“Fidan is expected to be Turkiye’s winning horse on the chessboards of the Middle East, the Eastern Mediterranean, and the Black Sea.”

Yasar Guler, the country’s chief of general staff, was appointed as the defense minister in the renewed cabinet.

Although not announced yet, presidential spokesperson Ibrahim Kalin is expected to be named as the new intelligence chief.

The governor of the central bank has not been announced yet but the name of Hafize Gaye Erkan has come up.

Erkan holds a doctorate from Princeton University, worked for many financial institutions in the US, including Goldman Sachs as a financial services executive, and is the former president of First Republic Bank.

Over the past four years, Turkiye has seen four governors at the helm of the central bank.