‘Delicate’ relationship between Erdoğan and PM hits economy

As I have written before, on the topic of whether or not to put the presidential system at the top of the election campaign, the relationship between President Recep Tayyip Erdoğan and Prime Minister Ahmet Davutoğlu is “delicate.”

It seems that this “sensitive” concept will be observed in almost every topic regarding the management of Turkey from now on.

Our latest topic, you know, is the interest rate debate. President Erdoğan said in December that the Central Bank should lower interest rates, and then he kept on saying it. At the beginning of the week on his return from Saudi Arabia, he repeated that interest rates should go down.

Actually, there is a background to this. You will remember that the four cabinet ministers accused of corruption were acquitted by the parliamentary commission in January. After this decision, Prime Minister Davutoğlu announced an anti-corruption package, containing a section named “transparency, where the obligation of declaration of property is expanded to the administrators of a political party.” There was also a “rent tax” for extraordinary profits from land ownership. 

President Erdoğan criticized the transparency section of the package, saying it had been announced without asking him. Then, in one or two public speeches, he criticized the rent tax saying, “we cannot give up on the construction sector.” After these criticisms, the government quietly postponed the package until after the elections.

It is said that these two topics were brought up during Erdoğan’s prime ministry, but he closed the subject each time by saying it is not the right time. It is rumored that these two subjects rejected by him at one time were announced by Davutoğlu in a press conference. This multiplied Erdoğan’s reaction.

This interest rate debate grew into a theme that is damaging all of us, with the dollar peaking at 2.60 Turkish Liras.

Prime Minister Davutoğlu’s recent words show that there is a distance between himself and the president on this topic.

The “delicate” relationship between Davutoğlu and Erdoğan should be monitored closely.

Polarization on interest rates 

Davutoğlu spoke to journalists in New York the other day. This is what he said:

“One of the reasons the Central Bank’s inflation target was not met was the increase in the prices of agricultural products. Why? There was a drought. This shows us that inflation is not determined by the Central Bank’s interest rate or foreign exchange rate policies. It is not correct to polarize this. For investors, political stability is also important, as is inflation and interest rates. Last year, the president and the prime minister changed. If there had been a crisis within the government then, this would have pulled interest rates up … We must attract capital from abroad. If we cannot construct a healthy relationship with interest rates and expected inflation, then foreign investment will start falling.”

I think it is crystal clear that these words were intended as a reply to certain criticisms brought by a certain somebody.

On the one hand, Erdoğan criticizes the Central Bank for not being able to meet the inflation target and for slowing down investments by increasing interest rates; on the other hand, Davutoğlu defends the Central Bank (once again).