D.he Turkish President Recep Tayyip Erdogan hesitated and did not hesitate: Shortly after a surprising rate hike, he fired the Federal Reserve President Naci Agbal on Friday night. His place will be taken by Sahap Kavcioglu, a former member of the ruling AKP. Erdogan has once again demonstrated who is ultimately the top monetary politician in the country – himself.
The long double-digit inflation rate shows impressively how the daily life of many Turks is becoming more expensive. Erdogan has declared higher key interest rates to combat them and also to stabilize the external value of the lira as undesirable on several occasions in the past. He demanded and demands reasonably favorable financing and refinancing conditions. Agbal is also not the first central bank governor to be fired because of it.
The course on which Erdogan has taken Turkish monetary policy remains dangerous. Because not only the high rate of inflation is bad. The fact that the central bank’s independence has actually been abolished is also undermining the trust of international donors in particular in the country, which is not only suffering economically from the consequences of the pandemic.
Trump versus Powell
Of course, central bankers also have to accept criticism – from independent experts as well as from those in power. They are not in a sacrosanct sphere, but have to explain and, if necessary, justify decisions based on the power with which they are endowed.
The Turkish president is also not the only head of state or government to publicly address the central bank. Donald Trump, who is also extraordinary in this respect, insulted and threatened the Federal Reserve President Jerome Powell and also demanded lower interest rates from him. In the past, which goes back a long way, examples can also be found in which German government members argued with the Bundesbank leadership.
However, in the market economy-oriented western democracies, the tried and tested principle of anchoring a central bank with a clearly defined mandate as an independent institution has ultimately been retained. And precisely in order to protect them from political arbitrariness and insubordinate influence.
The idea of this economic “separation of powers” remains correct. It has definitely paid off, even if the financial crisis has resulted in extensive use of new monetary policy instruments. This should also be evident in Turkey: In the short term, Erdogan may have bought himself time and dispelled doubts about his assertiveness. In the long term, however, it can neither mask nor solve the country’s economic problems in this way.
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