Turkey’s finance minister has resigned and been replaced by a loyalist to President Recep Tayyip Erdogan amid a sharp plunge in the lira.
Lutfi Elvan, who was seen as the last remaining voice of economic orthodoxy in the Turkish leader’s cabinet, asked to be relieved of his duties, according to the country’s official gazette.
After weeks of rumours that he was seeking to step down, the former technocrat was replaced by Nureddin Nebati, who last week made a fulsome public defence of Erdogan’s policy of cutting interest rates despite rising inflation.
Nebati, who served three years as a deputy finance minister prior to his appointment, said Turkey had for years been trying to implement a policy of low rates but had always faced strong opposition. “This time, we are determined to implement it,” he wrote on Twitter, adding that there was “no problem” with keeping interest rates low in current market conditions.
The lira has lost close to 40 per cent of its value since the start of September as Erdogan, a life-long opponent of high interest rates, has pressed the country’s central bank to repeatedly cut them, lowering its benchmark rate to 15 per cent despite annual inflation of close to 20 per cent.
That approach has prompted warnings from economists that the government risks causing runaway inflation and financial instability.
Nebati, a former businessman turned politician, is seen as close to Erdogan’s son-in-law Berat Albayrak, who served a highly contentious term as finance minister from 2018 before himself resigning in November 2020 after the president announced a shake-up in the management of the central bank.
Albayrak and Nebati were pictured having lunch together in a restaurant in Istanbul in August.
Elvan, 59, was respected by the business community but had been seen as increasingly isolated in recent months. He had publicly insisted that the government was still seeking to bring down inflation and maintain a stable currency even though the central bank had cut its benchmark interest rate for the third month running in November.
Erdogan made a thinly veiled attack on Elvan for his stance last month. “We will lift the scourge of [high] interest from the backs of our people,” Erdogan said in a speech to parliament. “I’m sorry to our friends [from the ruling party] who defend [high] interest but I cannot and will not walk the same path as them.”
Elvan’s resignation came after the country’s central bank announced a return to a controversial policy of intervening in the currency markets in an attempt to steady the tumbling lira, despite limited foreign exchange reserves.
The central bank said on Wednesday that “unhealthy price formations” had prompted the decision to sell hard currency such as US dollars in an effort to support the embattled currency.
Turkey has not announced a direct currency intervention since it sold $3.2bn at the beginning of 2014. However, the country burnt through tens of billions of dollars of its foreign currency reserves in 2019 and 2020 in an unofficial and ultimately unsuccessful attempt to support the lira that drew strong criticism from the country’s opposition.