Top level difference of opinion on Turkish economy deepening

The difference of opinion between the president and the government, and also within the government itself, about economic policies is getting deeper. 

Following President Recep Tayyip Erdoğan’s statement last week about interest rate cuts, it was observed that the difference of opinion was not only limited to monetary policies, but had also spread to several main areas.

The Central Bank decided on the interest rate on Jan. 20, but the discussions will apparently continue. After Erdoğan’s statement, starting with Economy Minister Nihat Zeybekçi, a couple of cabinet ministers said a higher dose of interest rate cuts should have been given.

After the cabinet meeting at the presidential palace, government spokesman Bülent Arınç said, “Our cabinet ministers want the Central Bank to cut rates.” This created the impression that the cabinet also wants a cut in interest rates, but at least Deputy Prime Minister Ali Babacan and Finance Minister Mehmet Şimşek should have said, “The Central Bank should decide itself.”

We do not know whether Babacan and Şimşek speak to Erdoğan as determinedly as they speak to the public, but they have continued giving messages that the Central Bank should be independent.

The differences of opinion on the Central Bank’s independence and interest rates will not come to an end with this latest decision, because Babacan and the Central Bank insist on making cautious decisions on interest rates depending on the developments in the global economy, maintaining economic stability and looking out for equilibriums. On the other hand, the president and the cabinet ministers who repeat whatever he says reiterate that, “There should be interest rate cuts absolutely and rapidly.”

The impression in the public is these demands will keep coming" regardless of how much the Central Bank cuts.

Difference in principle politics

Actually, the difference of opinion between the president and Babacan is not only on interest rates, but also on the need to restructure the economy and on increasing the capacity of growth based on industry the division is quite deep. It has been observed that Babacan has convinced Prime Minister Ahmet Davutoğlu on these policies. Therefore, it could be said that the clash is between the president and the government, but in practicality it does not happen so. This is because some cabinet ministers, regardless of the stance of the prime minister, make statements that reinforce what the president says.

Recently, within the transparency package, when the taxing of earnings from property was in question, news spread that Erdoğan became very angry. It is being rumored that this anger is at a much higher level and that the president and his close aides were very angry at Babacan and Şimşek.

I think Babacan and his team are working to save the future of the economy with contemporary economy politics focusing on the institutionalization of structural measures. The president, on the other hand, wants policies based on current profits and the construction sector to continue.

It is certain that they will be keen to camouflage this difference of opinion until the elections, but the realities have become too obvious to hide.