Running Turkish economy now a family affair
PhD in finance? Check. Graduate school in the US? Check. Experience as a corporate executive? Check.
On the face of it, Turkey's 40-year-old economy czar Berat Albayrak has many of the traits that ensured his predecessors were respected by investors. Yet his appointment as Turkey's chief economic policymaker on Monday caused the biggest bloodbath in Turkey's financial markets since a failed military coup two years ago.
Investors' disappointment over Albayrak is less about his economic credentials than his family pedigree.
He'll be answering to his father-in-law, President Recep Tayyip Erdogan, who is already using his new executive powers to tighten his grip over the central bank.
Albayrak's predecessors, including Mehmet Simsek, reined in the president's go-for-growth instincts to keep Turkey's $880bn (€749bn) economy on a sustainable path, easing the political pressure on the bank to cut interest rates as Erdogan wanted.
The president's son-in-law may not provide that bulwark, said Nigel Rendell, a senior analyst at Medley Global Advisors in London.
"Yes, he's got an MBA from a US university and he's been a CEO, but is he really going to stand up to his father-in-law?
"Would he be prepared to argue that interest rates should be significantly higher and economic policy much tighter?" Rendell said. "If we look back and ask who's stood up to Erdogan and come off better, it's a short list. In fact, it's a list with no names."
Albayrak signalled change was afoot as he took office on Tuesday. "From now on, budget and fiscal discipline will be maintained in a better way," he said.
The lira lost more than 3pc against the dollar after Albayrak's appointment as the Treasury and finance minister was announced Monday night. On Tuesday, Turkish bonds tumbled, pushing 10-year yields to a record high. Stocks also slid.
A political rookie who only joined parliament in 2015, Albayrak's actions leading up to the next rate meeting on July 24 will come under intense scrutiny. But he's been a fierce critic of high interest rates and frequently advocated swift cuts, even as the International Monetary Fund accused the central bank of failing in its mandate and losing credibility.
"Unless they see their institution as the last bastion of the status quo, what's expected of them is to rapidly lower market interest rates in line with the current economic strategy," he wrote in a 2014 piece for the pro-government daily 'Sabah', where he was a columnist for about two years. Concerns about where Turkey's economy is heading predated Albayrak's posting, though.
Erdogan's declared plan to take a bigger role in steering the country's economy had already sent markets plunging in May. The president holds the unorthodox view that lower interest rates bring down inflation, now running at more than triple the official 5pc target.
Before becoming a lawmaker, and then energy minister, Albayrak was immersed in academia and the private sector.
While studying for a master's in business administration at Pace University in New York, he began working for Calik, a Turkish company whose holdings spanned energy, media, telecommunications and banking. He later completed a PhD in finance and banking at Istanbul's Kadir Has University and taught classes at Marmara University.
In 2004, Albayrak married Esra, the eldest of then-Prime Minister Erdogan's two daughters. In 2006, he was named the chief executive of Calik at the age of 29, an unheard-of feat in Turkish corporate life, where seniority remains important.
Under his watch, Calik bought what was then Turkey's second-largest media group, which owned Sabah and ATV television, both allies of Erdogan. A few years later, Calik sold the assets to a Turkish company, keeping it in Erdogan-friendly hands, according to Turkish media.
The central bank's July 24 interest rate meeting may test Albayrak as much as it does the central bank should the lira come under renewed pressure. The bank has traditionally been under the aegis of the deputy prime minister in charge of Turkey's Treasury - now part of Albayrak's remit.
Markets may turn out to be the only restraints on Erdogan's policies, said Julian Rimmer, a London-based trader at Investec Bank. "It is abundantly clear that all future strategic decisions taken about anything in Turkey will be informed by the president's whim, and the new cabinet will function purely as a rubber-stamping forum," Rimmer said.
"The only constraints set to be imposed on Erdogan are those likely to derive from bond and currency markets, which may inhibit any overtly reckless economic policymaking." (Bloomberg)