Aug 07 2019

Turkey boosts role of Treasury in economy as Erdoğan chases growth

Turkish President Recep Tayyip Erdoğan issued a decree strengthening the role of the Treasury and Finance Ministry in the economy as his government sought to boost economic growth.

The Treasury may now acquire stakes in local and international companies, Erdoğan said in the decree published in the Official Gazette on Wednesday.

The ministry is also permitted to work on developing the financial sector, according to the presidential order.

Erdoğan and his son-in-law, Treasury and Finance Minister Berat Albayrak, have tightened control of economic decision-making since Erdoğan acquired enhanced presidential powers at elections last year. Erdoğan appointed Albayrak as a minister in July 2018, and at the same time merged the Treasury and the Finance Ministry.

The decree also revised the tasks of various departments of the ministry.

Turkey’s economy fell into a recession in the second half of last year after a currency crisis ripped through financial markets. It emerged in the first quarter of this year, thanks in part to cheap lending provided by state-run banks.

Ratings agencies including Standard & Poor’s have warned that Turkey’s sovereign credit rating is coming under pressure because economic decision-making is becoming centralised and less predictable.

Hundreds of Turkish companies have become bankrupt and others have applied to banks to restructure their debts during the economic downturn. Some of the worst affected are involved in Treasury-guaranteed construction projects. The construction industry has take a big hit from the turmoil after the price of housing slumped and sales dived.

Erdoğan and Albayrak also run a recently established sovereign wealth fund that now operates Turkey’s state-owned companies away from parliamentary oversight. The wealth fund is also allowed to trade in financial markets but it has struggled to raise the capital needed to take a more active role in the economy.

Last month, Erdoğan sacked and replaced the central bank governor after he failed to follow orders to lower interest rates. 

Investors and economists have also expressed concerns about Erdoğan's strengthened role in economic decision-making, saying Turkey should ensure the independence of the central bank and other key institutions.