Central Bank Governor Erdem Başçı very uncomfortable

Central Bank Governor Erdem Başçı, who was rumored to have resigned on Thursday, just like Deputy Prime Minister Ali Babacan, spoke to me on the phone in a wry tone of voice. He thanked me for my “get well soon” wishes and said he was using antibiotics. 

I told him about the rumors circulating that he had resigned but Prime Minister Ahmet Davutoğlu did not accept his resignation. He said the prime ministry had already issued a statement about this, denying the rumors. I mentioned that instead of Babacan or himself making a direct announcement, the public was left with the statements of other parties. This time he said directly that there was no resignation.

Looking at the developments and the background, Başçı is obviously uncomfortable. He must have told the prime minister that things cannot go on like this. The PM must have tried to convince Başçı and gain some time.

Wednesday evening was marked by resignation rumors about Babacan, while on Thursday morning the stories about Başçı followed. On the Ankara Review website, it was reported that Başçı did not attend the Bank Board meeting held on Thursday morning, leaving one of his deputies in charge. When this went public, Central Bank Spokesperson Yücel Yazar said Başçı was having a heath check and there were no serious health problems. Yazar said Başçı would be back in his job on Friday afternoon. 

Actually, the Central Bank board meets according to the governor’s schedule. In other words, if the governor is sick or travelling, it rearranges to meet on another day.

The morning after an evening when there have been rumors that the deputy prime minister has resigned, no Central Bank governor goes for a health check up for a minor health issue - especially at an institution where several doctors are working.

Controlled tension

So, Ankara has been stirred up by resignation rumors for the past couple of days. It was said that both Babacan and Başçı had resigned and were trying to be persuaded to reconsider. Denial of the rumor came not from the subjects themselves, but from other interlocutors. This is probably because they do indeed have such an intention to resign, but are waiting for a response. They have probably had a showdown about things that have gone wrong. The reason they are not being open about it is that they are not currently in a position to take the consequences, and they want to avoid being accused in advance as the cause of potential losses.

A resignation in the economic administration under today’s conditions makes those who want to resign fearful. For this reason, even though Babacan and his protégé Başçı have abundant reasons and intentions to resign, apparently they are tense about being held responsible for possible consequences after their resignations.

What predecessors say  

I asked a number of former Central Bank governors what they would do if they were in Başçı’s shoes now. One said he would resign immediately. Another said it was important to take a stance, explaining directly or indirectly what cannot be done.

Başçı was most recently criticized by President Recep Tayyip Erdoğan earlier this week. He was made extremely uncomfortable by the president’s statement: “You are struggling for independence from us, so does that mean you have some kind of dependency on other sources?”

Pressure causes hikes

Hürriyet’s economy desk has counted six separate attacks from the president to the Central Bank since Jan. 16, each time leading to a hike in the foreign exchange rate. Long term interest rates have also jumped after these six attacks.

While 10-year bond yields were 7.05 percent on Jan. 20, they went up to 8.32 percent on Thursday.
Also, separate from rises in the levels of foreign exchange rates and interest rates, they are also fluctuating in a wide corridor. The financial fluctuation of sharp falls and climbs does great damage to the real sector. To put it in simple terms, even in the purchase of a normally routine raw material, there appear to be remarkable cost fluctuations. The pressure to lower short term interest rates has caused long term interest rates to increase by 1.2 points. As a matter of fact, from Jan. 20 to Feb. 26, the Central Bank lowered interest rates by 0.75 base points. The summary of this is very clear: The Central Bank’s lowering of interest rates does not pull down long-term rates. On the contrary, the lowering of interest rates in an untimely way, and by force, has caused long term interest rates to rise. It is long term interest rates that most needed a drop.

In normal circumstances, a Central Bank head would have resigned in the current atmosphere. But circumstances are not normal. Even though certain circles in the government are wishing for his resignation, this would deepen the existing tremors in the economy.