Simsek affirms Erdogan's support amidst economic transformation
Turkey's Finance Minister Mehmet Simsek reaffirmed on Thursday that the country's economic program enjoys full support from President Tayyip Erdogan, after analysts said the short-term economic pain could test his patience.
This declaration came just a day after the government revised its inflation forecasts upward and reduced its outlook for economic growth.
Erdogan, known for his unconventional economic views, has long been an advocate against high interest rates, arguing that they contribute to inflationary pressures. However, in a surprising shift, he stated on Wednesday that he anticipates inflation to drop to single digits "with the support of tight monetary policy," seemingly endorsing the recent aggressive interest rate hikes—a move that caught some financial analysts off guard.
During a media briefing, Minister Simsek unveiled plans to hold investor meetings in key global financial hubs, including Germany, New York, London, and various cities across Asia and the Middle East. This outreach underscores Turkey's commitment to engaging with international investors and strengthening its economic ties globally.
The transformation in Turkey's economic policy began in June with Simsek's appointment, marking a departure from previous practices. Analysts welcomed this change as a more realistic approach to address the country's soaring inflation, which had reached over 85% last year. However, they cautioned that the short-term economic challenges associated with these reforms could test the government's resolve.
Minister Simsek, a figure highly respected by foreign investors, made sure to emphasize President Erdogan's unwavering support for the economic program.
"Whether it's about our disinflation efforts or fiscal policies, the president's backing is unequivocal. We not only feel it, but we also see it; it is tangible," Simsek said.
Turkey has grappled with severe economic difficulties, including depleted foreign exchange reserves and a depreciating lira in recent years. Since the elections in May, the lira has further declined by 25% against the US dollar, intensifying the urgency for economic reforms.
The government's updated forecasts paint a challenging picture for the Turkish economy. Annual inflation is projected to rise to 65% by the end of the year, before gradually decreasing to 33% next year. This represents a notable increase from the previous forecasts of 24.9% and 13.8%, respectively. Additionally, GDP growth estimates were revised downward to 4.4% for this year and 4% for the following year, although these figures remain higher than what many economists anticipated.
In another pivotal move, President Erdogan appointed Hafize Gaye Erkan, a former Wall Street banker, as the new central bank governor in June. Under Erkan's leadership, the central bank swiftly implemented interest rate hikes, raising rates from 8.5% to 25%. In a statement during Thursday's briefing, Erkan affirmed that further monetary tightening measures would be employed until a significant improvement in inflation is realized.
She also noted that investor appetite for Turkish assets remained strong, expressing optimism about robust investor interest in Turkish bonds. Citing reports of the World Bank's plans to double its exposure to Turkey within three years, Erkan indicated that this development reflects the growing investor confidence in Turkey's economic potential.