By Enis Erdem Aydin
The tumultuous resignation of Turkish President Tayyip Erdogan’s son-in-law as Finance Minister, last week, was a milestone in Erdogan’s 18-year rule of the country, as it exposed political rifts at the highest -the family- level, for the first time. Despite the resignation saga which has thrown the Erdogan regime off balance, the economy, and especially the exchange rate, seems to have slightly picked up steam, following the President’s messages of financial orthodoxy and judicial reform. Does Erdogan’s replacement of his son-in-law usher a new era for Turkey? Is the country heading back to reforms and democracy? The short answer is no, and here is why.
What happened?
Turkish President Erdogan’s Finance Minister and son-in-law Berat Albayrak, resigned on a Sunday last week (8 November), in an unusual Instagram post, which was scandalously but not surprisingly neither reported in the government-controlled mainstream media nor acknowledged by the Presidency until about a day later. The unfolding set of events marked a surprise and unprecedented rift in Erdogan’s close family circle, rendering it as one of the greatest tests his administration has encountered with.
First, a recap. The son-in-law Albayrak, had been officially serving the Erdogan administration for the past 5 years, first as Energy Minister in previous governments and as his Finance Minister since 2018. Both appointments had raised many eyebrows both in Turkey (including Erdogan’s party) and international financial markets, which have lost the greater part of their confidence in the impartiality of the country’s monetary policy.
Under Albayrak’s helm, the Turkish economy, which was also hindered by the domestic and international crises President Erdogan helped bring about, especially those with the US President Donald Trump, was heavily battered.
In the space of two years, Turkish lira lost nearly 50 per cent of its value against the US dollar and both the inflation and the unemployment levels have maintained their two-digit figures. Perhaps more drastically, the central bank, trying to shield the lira from political pressure to lower the interest rates, spent an estimate of 100 billion dollars from its precious exchange reserves, which not only depleted them but also could not halt lira’s depreciation in the long-term.
Albayrak had been critical to the Erdogan regime, not only in monetary affairs, but also in party and bureaucratic appointments.
The latter, drew the ire of the party establishment and also the opposition, to the extent that he was accused of leading a ‘‘kingmaker’’ clique, called the ‘’Pelicanists,’’ named after an infamous blog which brought down a former prime minister and lobbied for the Istanbul re-vote, with disastrous consequences for Erdogan’s AKP. Nevertheless, Albayrak’s main role lay with the economy for a long time, starting from before his ministerial appointments.
His leaked e-mails, published by WikiLeaks, showed him indirectly in charge of the central bank (CBRT), even when he did not hold an official post at the administration. Albayrak’s position as the head of the Treasury, only boosted that control which saw his economic vision colliding with that of his father-in-law. Erdogan’s open fixation with lowering interest rates to boost the Turkish economy, has resulted in his replacement of several CBRT governors (2 in the last 16 months) who failed to lower the rates, to his desired levels. The son-in-law crisis coincided with his last replacement, on November 7, a day before Albayrak’s resignation.
Why now?
While a cabinet reshuffle has long been in the making, especially after the last year’s local election defeat for AKP, no one in Ankara expected that to start with Erdogan’s own son-in-law. The language of the resignation letter, the way Albayrak exited his father-in-law’s government without much accolade for the President, were surely unorthodox. This leaves us with the notion that it was Albayrak who wanted out, rather than Erdogan. And it seems that his resignation was a final straw in his relationship with his father-in-law, who continued to challenge his management of the economy.
Let’s look at the immediate cause.
The catalyst for the resignation was Erdogan’s replacement of the central bank governor (an area Albayrak saw himself responsible for) with a technocratic Erdogan loyalist, who was not necessarily on good terms with his son-in-law.
Albayrak appears to have seen the move as another breach of his authority on the economy and opted unusually for a resignation, citing ‘’health reasons.’’
But the fact that he mentioned ‘’murky waters’’ in the poorly written resignation letter, which also gives a sense of his urgency and frustration, signalled that the ‘’health reasons’’ were a mere alibi and there are greater rifts within the government circles.
His bitter rivalry with the Interior Minister Suleyman Soylu, who also opted for a similar resignation attempt on Twitter back in April but was endorsed by Erdogan, is public. While the ‘’murky waters’’ may carry the undertones of this rivalry, in this case, it was clear that this move was personal, and related to his relationship with his father-in-law.
Neither the government-controlled media (ironically mostly controlled by Albayrak’s elder brother, Serhat) nor the much-active Communications Directorate of the Presidency acknowledged the Instagram resignation, in the next 24 hours, allowing a breeding ground for political hearsay, especially on social media.
In a seemingly concerted effort which was akin to a corporate firing, Albayrak’s Twitter account, and later his Instagram, where he made the announcement, was closed down. Meanwhile the presidential bureaucracy carefully worded the resignation saga: Albayrak had ‘’requested his pardon from duty,’’ from the President and was subsequently granted, according to the official statement of the communications directorate.
In another public embarrassment for the Erdogan regime, Albayrak, who reportedly closed himself off to the world in his Black Sea hometown, Trabzon, refused to take part in the ‘’hand-over ceremony’’ at the ministry - a favourite display of the Erdogan bureaucracy to signal a smooth transition of power between ministers.
Despite the presidential bureaucracy’s efforts, he made it clear that nothing was ‘’smooth’’ about his resignation. Albayrak was eventually replaced by a loyalist and party veteran, former Transport and later Development Minister, Lutfi Elvan, not the first AKP politician to come to mind as monetary affairs are concerned but nevertheless regarded as a mild technocrat.
What will change?
Not much. Because of the nature of the executive presidential regime, Erdogan holds all the cards and will continue to reign as an unaccountable president, replacing ministers and central bank governors as he pleases.
Needless to say, the move will please the old and new guards of his party, including Albayrak’s rival the Interior Minister Soylu, who have detested Mr. Albayrak and his clique’s controlling attitude which has permeated all party decisions.
The clique also known as the ‘’Pelicanists,’’ alluding to an insider blog which forced former PM and current opposition figure Davutoglu to resign in 2016, was reportedly led by Albayrak and the associated Bosphorus Global ‘’think-tank.’’
The group was also instrumental in the Istanbul re-vote, after the initial defeat of the AKP candidate, in 2019 municipal elections. While Erdogan seemed keen to admit defeat on the election night, he was persuaded otherwise in the following days. His personal visit to Bosphorus Global during that time, largely translated as a public endorsement of this decision.
After a brief shock, following Albayrak’s resignation, the economy has briefly kicked back, with Turkish lira making slight gains against the dollar. This was also boosted by the appointments at both Central Bank and Finance Ministry and Erdogan’s ‘’new era’’ rhetoric which signalled CBRT independence and judicial reform.
Despite the early market reaction, as the time has shown repeatedly, including in this very speech, when he made his case for lower interest rates, it is only an illusion that Erdogan will stop at interfering with the CBRT.
It looked as if the financial institutions and markets this time have heard what they wanted to hear: financial orthodoxy.
As long as it is not backed by any institutional reform, including the presidential regime, itself, this will nevertheless be a short honeymoon, ready to implode in the next crisis- which could be just around the corner, with the change in the US leadership.
As long as there are no checks and balances to Erdogan’s power and no institutional frameworks to guarantee financial and judicial independence, the Turkish economy is bound to lose ground in the medium to long term.
Erdogan is still convinced that low interest rates, which he could not help but reiterate in his last speech, will help boost the Turkish economy, and especially its AKP-era backbone, the construction sector by making credits cheaper to borrow. He wishes to go back to this model which boosted his AKP’s earlier reign in the first decade of the 2000’s.
While Erdogan has previously said that he will respect CBRT’s independence, the record shows that he has not done so, replacing governors who did not lower interest rates, as well as keeping his son-in-law in charge of CBRT affairs, as seen in leaked e-mails of Albayrak.
The key test will come on Thursday, the 19th, when the CBRT under its new head Naci Agbal will announce its interest rate decision. While the markets expect a big hike, pro-government media has already begun to express frustration and re-circulate ‘’the interest rate lobby’’ theories.
Whether the hike is as big as the markets expect (around 475 points), it would be very optimistic to expect Erdogan in the long run, to back away from his ‘’low interest rates=low inflation’’ conviction and give up his push for lower rates.
What next for the ‘’Pelicanists’’?
While his presentations, much ridiculed in the social media, will be missed, surely, Albayrak will make a come-back in a different role, after the cooling down of tensions both in the family and Turkish economy. This is also evident from the level of support by AKP-affiliated bureaucrats and ministers Albayrak received during this saga. Also he currently maintains his post as the deputy chair of Turkey’s Wealth Fund, with no sign of resignation.
And the so-called ‘’Pelicanists?’’ It is clear that his resignation will affect their positions in the pro-Erdogan establishment. One close ally, an edgy talking head, seems to have already lost his job at a university owned by a minister. As most are linked via family, in one way or another, without Albayrak they will have less power to shield attacks from the party’s old and new guards, including the powerful Interior Minister. Nevertheless, a major shake-up is not expected among the inner circle.
The ones who are not that lucky, i.e bureaucrats and party officials appointed by the Albayrak-led clique are on a more precarious ground. Nevertheless, the party will try to make sure that they do not move to two AKP-offshoot opposition parties.
Despite the mild financial positivity and Erdogan’s continued reform rhetoric, it is clear that the resignation has thrown the party off balance. While united under Erdogan, we will continue to see greater rifts surfacing among the party cadets, now that the Pandora’s Box has opened. As for financial and judicial reform? After his polarizing and increasingly authoritarian 18-year rule, it would be naïve to think that Erdogan will be wholeheartedly espousing these ideals. An evidence of that is the recently-opened investigation against the Istanbul Mayor Imamoglu, a likely Presidential candidate of the opposition. The ‘’pelican’’ might have left the nest but the ‘’big bird’’ is there to stay.