What kind of a bureaucrat is Turkey’s new central bank governor?

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Naci Ağbal

Turkish President Recep Tayyip Erdoğan on Saturday again replaced the governor of the central bank after a previous ousting only 16 months earlier, appointing Naci Ağbal, head of the presidential budget and strategy, to the office.

After removing Murat Çetinkaya, the last truly independent governor of the Turkish Central Bank, from the post in 2019 Erdoğan said: “We dismissed Murat Çetinkaya because he failed to lower interest rates. As you can see, the rates are now lower. And they will continue like that.”

Erdoğan has advocated a theory that as interest rates go down, so will the rate of inflation, and he has replaced all governors of the central bank who did not behave in line with that theory.

Ağbal is a close Erdoğan ally. He has held several important positions in the finance departments of Erdoğan’s government for 15 years. The position of finance minister, which he held between 2009 and 2015, was the first time he worked closely with Erdoğan.

With Ağbal assuming office, it is possible to say that the central bank will completely fall under Erdoğan’s influence and lose the ability to make independent decisions.

 The risk of the Turkish lira losing more value is now higher than ever before. The central bank’s net foreign currency reserves currently stand at negative $52 billion. Turkey’s current account deficit is at $24 billion, and it is expected to reach $30 billion by the end of the year.

The public net debt stock has reached $140 billion. The private sector must repay $15 billion in debt in the November-December period.

Turkey’s budget deficit, which is TL 240 billion ($29 billion), will be TL 350 billion ($42 billion) in 2021, in the most optimistic scenario.

Unless the bank’s new governor increases interest rates to more than 20 percent, it is not possible to hold the lira steady against the dollar. On Ağbal’s first day in office, the lira gained 5 percent in value against the US dollar. However, it was not due to positive market reactions to his appointment but rather due to public banks selling foreign currency on order.

Ağbal is the last person who would defend the independence of the central bank. The budget deficit reached a then-record high of TL 50 billion ($6 billion) during the period when he was finance minister. He owes rising through the ranks not to his expertise but to fully complying with orders from Erdoğan.

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