Erdogan’s son-in-law resigns as finance minister

Berat Albayrak resigned from his post as Turkish finance minister. The photo shows it at the opening in July 2018.

Umit Bektas / Reuters

Although President Erdogan has remained silent for more than 24 hours about the resignation of his son-in-law, Finance Minister Berat Albayrak, one thing was certain since Monday morning: the markets would be happy with a change of the Treasury. After the fall of recent weeks, the Turkish national currency had its best day in two years on Monday, gaining 5.45% against the dollar.

Tragedy of the Turkish media

Albayrak, who is married to Erdogan’s eldest daughter, Esra, surprisingly announced his retirement from politics Sunday evening and put forward health reasons. More evident, however, are a link to the currency crisis in Turkey and resentment within the presidential palace. Since the beginning of the year, the lira has lost more than a third of its value against the main currencies, inflation is close to 12%, double the target.

The announcement of his resignation was given in a rather unconventional way in a hastily worded letter on the social platform Instagram. At the same time, Albayrak’s Twitter account was deactivated. At first there were therefore suspicions that the hackers had played a trick on the extremely unpopular minister. But on Sunday evening, the spokesman for the finance ministry confirmed the resignation to journalists – at least to those who asked for it.

When it was finally announced on Monday evening that President Erdogan would accept his resignation, all the media close to the government had not hinted at the issue in a single syllable. They were obviously waiting for a signal on how to classify the incident. The story is also an illustrative example of the deplorable state of the Turkish media landscape. In the midst of a severe economic crisis, a development of fundamental importance for consideration of sensitivities in the presidential palace was hushed up for more than a day.

Late Monday evening it was announced that Lüfti Elvan, who was previously head of the transport department, would be the new finance minister.

Power struggle in the most intimate circle

Albayrak had been one of Erdogan’s staunchest followers in the government. Despite great doubts about his suitability as finance minister, which he achieved a lot in the government field, he had a relatively strong position thanks to his family ties to the state leadership and was, along with interior minister Soylu, one of the candidates for the succession of the president.

The intriguing Soylu has always had a broader power base. When he announced his resignation in April due to a messed up Corona provision, calls immediately appeared on social media that Soylu should have remained in office. Erdogan was almost forced to reject the resignation.

As the markets show, reactions to Albayrak’s announcement could not have been more contrary. However, it remained unclear for a long time whether Albayrak would also be invited to remain in office. It is known that Erdogan does not like being presented with a fait accompli and that ministers, if they do, dismiss it as their resignation.

In Erdogan’s inner circle, characterized by trench warfare, the finance minister’s supporters will emerge weakened from the current turbulence. The head of the German think tank Marshall Funds in Ankara, Özgür Ünlühisarcikli, therefore assumes that further changes in the power structure will follow.

From son-in-law to son-in-law

Albayrak’s resignation is the biggest, but not the only shock in Turkish economic policy in recent days. President Erdogan also replaced the head of the central bank on Saturday night with Albayrak’s predecessor as finance minister, Naci Agbal. According to media reports, Albayrak had not been consulted prior to this move, which is cited as the reason for the resignation. Agbal said on Monday that the central bank will use all means at its disposal to fight inflation. This suggests the desire to move away from the previous low interest rate policy that had fueled the fall of the lira.

Developments beyond national borders are likely to play a role in this. The election result in the United States has increased the economic and political pressure on Turkey to act. It is widely believed that a Joe Biden government will take a tougher line with Ankara in both the dispute over the Russian S-400 weapon system and the Turkish state-run Halkbank affair, which is said to have been used to circumvent sanctions against the ‘Iran which inevitably meant further difficulties for Turkey.

The fact that no punitive measures have been taken so far is largely attributed to the good relationship Albayrak has with Jared Kushner, from son-in-law to son-in-law to some extent. This is one of the reasons why Albayrak’s position is now weakened.

Albayrak is not the only scapegoat

For these reasons, the departure of Albayrak, who always seemed overwhelmed in his office as finance minister, could represent a new beginning. But it’s not the only scapegoat for grievances in the Turkish economy. In the presidential system, which is completely oriented towards Erdogan, all important decisions are taken by the president of the state, including economic policy.

The devastating low interest rate policy goes back to Erdogan, who continues to refer to high interest rates as the “mother of all evils”. It is by no means certain that the new central bank governor will actually be given the leeway for a tighter monetary policy in order to stabilize the currency and keep inflation in check, especially since that would likely go hand in hand with a recession. His incumbent predecessor, Murat Cetinkaya, was fired in July 2019 for this very reason.