Turkish Finance Minister Lütfi Elvan was replaced by decree on Thursday by his State Secretary Nureddin Nebati. The move follows a disagreement between Elvan and President Erdogan over his loose monetary policy, while inflation is close to 20 percent and the lira slumped to an all-time low of 15.50 per euro this month.
In a speech in parliament last week, Erdogan lashed out at “those who still defend higher interest rates.” It was a veiled sneer at Elvan, who was seen as one of the last capable economists in the government. After Erdogan’s speech, the entire faction of the AK party erupted into loud applause. Elvan was the only one who didn’t clap.
His resignation comes amid a currency crisis that is eroding Turks’ purchasing power. The lira has fallen more than 40 percent against the dollar this year, making it the worst-performing currency of all emerging economies. This is a serious blow to the Turkish economy, which is heavily dependent on the import of products and raw materials.
Despite rising inflation, Erdogan continues to push for lower interest rates. Under his pressure, the central bank cut interest rates for the third month in a row in November. The bank’s governor suggested on Thursday that there is still room for one cut this month and that it will come to an end for the time being.
It is unclear whether Erdogan can live with that. According to him, the interest rate cuts are good for exports, employment and investment. “I will never argue for higher interest rates,” he said this week. “God willing, you will see how quickly inflation will fall before the 2023 elections.” Such statements only drive the lira further down.
The currency stabilized somewhat after a move by the central bank, which sold $1 billion in foreign reserves on Wednesday to curb “unhealthy foreign exchange pricing.” But the bank’s ammunition is limited, as it has already spent $165 billion in reserves in recent years in a failed attempt to prop up the lira.
Unlike Elvan, Nebati is in favor of low interest rates. He said Turkey had tried for years to implement such a policy, but it continued to face resistance. “This time we are determined to implement it,” he tweeted. He said there is “no problem” in keeping interest rates low in the current economic conditions.
A version of this article also appeared in NRC in the morning of December 3, 2021
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