Erdoğan destroys Turkish Central Bank’s independence

President Recep Tayyip Erdoğan on Saturday dismissed central bank governor Murat Çetinkaya with a presidential decree published in the official gazette and replaced him with the bank’s vice governor, Murat Uysal.

The move marked the first time a Turkish central bank chief was dismissed since İsmail Hakkı Aydınoğlu was sacked by the generals who took control of the state following the 1980 military coup. 

A legal amendment made after Erdoğan was elected president in 2014 reduced the term of central bank governors from five to four years and granted the president the power to appoint a replacement.

Çetinkaya still had 10 months remaining on his four-year term, which began in 2016.

The central bank laws state that governors can be dismissed if illness prevents them from undertaking their duties, if they are found to be engaging in trade, corruption or espionage, or if discovered holding shares in banks or other companies.

But the decision to dismiss Çetinkaya cites a law passed by emergency decree after the July 2016 coup attempt, granting the president the power to dismiss officials who fail to achieve institutional targets.

Thus Çetinkaya was dismissed not for failing to meet central bank law, but rather as one of over 100,000 public officials dismissed by decree since the coup. 

His dismissal is another mark of Turkey’s new executive presidency introduced last year. The central bank’s independence has been done away with. Now, with one man holding the power to appoint or dismiss as he sees fit, no institution or individual is protected by legal guarantee.

Çetinkaya’s appointment had been criticised due to his weak background in economics and banking – he was a graduate of political science and public administration from Istanbul’s prestigious Boğaziçi University. He was criticised during his term for failing to adequately defend the bank’s independence and allowing the institution’s reputation to be eroded.

Yet even Çetinkaya proved to be too independent for Erdoğan’s government, which has apparently chosen to seek a governor who will implement its wishes without exception. 

Shortly after Çetinkaya was sacked, Erdoğan reportedly told members of the ruling party at a meeting in Ankara that the governor had been dismissed for refusing repeated demands to cut interest rates. The Turkish president’s unorthodox view of economics holds that reducing interest rates reduces inflation.

“The independent central bank’s governor has been dismissed by the president in the middle of the night on the grounds that he didn’t meet institutional targets. Those responsible have sacrificed any trust in the management of our economy. The central bank is in the government’s hands, period,” tweeted Faik Öztrak, spokesman for the main opposition Republican People’s Party (CHP) and former treasury undersecretary.

The decision to dismiss a central bank governor before the end of his term during a period of deepening economic crisis in Turkey is likely to be received negatively, particularly by foreign markets. Indeed, the lira slid 2.5 percent against the U.S. dollar on Monday morning, as analyst Tim Ash called the dismissal “an all-round idiotic move”. 

All the more as it shows how even Çetinkaya, a central bank governor who was pliable enough to allow the government to transfer its share of central bank profits to the budget four months early and remain silent when plans were made to tap the bank’s reserves, could not satisfy Erdoğan.

Durmuş Yılmaz, a deputy for the opposition nationalist Good Party who served as central bank governor from 2006 to 2011, warned that without the guarantee that a central bank governor would not be dismissed by the government, the bank could not be truly independent, adding that such a guarantee should be set down clearly in the law. 

Yılmaz pointed to the transparent policies for appointing and dismissing staff at the U.S. Federal Bank and European Central Bank as ideal models that engendered trust from global markets.

“In those societies this leads to low inflation, high growth and employment and strong welfare programmes. You can judge the practices in our country according to that,” Yılmaz said.

In his first statement as governor, Uysal vowed to keep all communications channels open and said he would aim to ensure price stability, indicating that a press conference would be forthcoming in the near future. But it is already clear that interest rates would be the main point of focus for the new governor.

The data from Turkey’s Statistical Institute says annual inflation has fallen to 15.72 percent, though the central bank has kept interest rates at 24 percent since inflation peaked last October. 

If the institute’s data is accurate, the bank should announce a significant reduction to the rate when the fiscal board meets on July 25 – though the institute’s data is controversial, with many economists and opposition politicians maintaining inflation figures have been manipulated for political ends.

In any case, Uysal’s first task as the bank’s new governor will be to decrease the interest rate to a level that satisfies Erdoğan, moving away from the tight policy the bank has maintained in recent months.

In Ankara, the dismissal is being interpreted by many as a refusal to accept the failure of Erdoğan’s son-in-law, Treasury and Finance Minister Berat Albayrak, and to pin the blame for the grave economic situation on Çetinkaya.

The dismissal signals that at this point the central bank’s independence exists only on paper. From now on, we can expect the government to use it like any of the other public banks it controls, dipping into its vaults as it sees fit and potentially having its printing presses working overtime.


© Ahval English

The views expressed in this column are the author’s and do not necessarily reflect those of Ahval.

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.