In a major shuffle of Turkey’s economic helm, President Recep Tayyip Erdogan has made a groundbreaking move, naming Hafize Gaye Erkan, a Princeton-educated former U.S. bank executive, as the new head of the nation’s central bank.
The bold appointment, marking the first instance of a woman leading Turkey’s central bank, signals a potential departure from the economic stance that many critics believe is exacerbating the nation’s cost-of-living crisis.
A pivot towards conventional economics?
Erkan, 41, formerly a co-chief executive of First Republic Bank, steps into her new role following Erdogan’s reelection for a third term.
The First Republic Bank, once a robust financial institution, fell victim to the wider turmoil in the sector as its wealthy clients withdrew their funds, leading to its downfall and making it the second-largest U.S. bank to fail.
This coincides with Erdogan’s choice of internationally acknowledged former banker, Mehmet Simsek, as treasury and finance minister, raising expectations for a transformation in Turkey’s economic policies.
Turkey’s economy has been staggering under soaring inflation, peaking at a whopping 85% in October. The everyday Turkish citizen is grappling with the mounting costs of necessities like food and housing.
Erdogan’s approach to combating this issue, namely insisting on low interest rates, diverges sharply from the global economic norm, which advocates for higher rates to battle inflation.
Erkan navigating an economic sea change
Erkan, known for her extensive financial acumen, now faces the monumental task of charting the course for the beleaguered Turkish economy. The next steps are crucial as the economy battles a plunging currency and sky-high inflation, which as of now stands at a staggering 39.5%.
The central bank’s upcoming meeting to decide on interest rates is poised to be a pivotal moment for the country’s economic future.
Liam Peach, senior emerging markets economist at Capital Economics, has noted that Erkan’s appointment is a positive step towards more credible economic policies, but also emphasized that this will need to be backed by action for investors to regain confidence.
Erdogan’s track record of axing central bank governors who fail to align with his policies raises the stakes for Erkan. She now faces the monumental challenge of proving the importance of maintaining high rates to mitigate inflation.
This could pose another hardship for households and businesses already grappling with skyrocketing food and energy costs in the wake of Russia’s invasion of Ukraine and the record lows of their currency against the U.S. dollar.
