President Tayyip Erdogan dismissed the head of Turkey’s Central Bank (TCMB) Naci Agbal and replaced him with Sahap Kavcioglu, according to a presidential decree published late last night in the official gazette. No official reason for Agbal’s sacking has been given, which was announced after the TCMB hiked rates by 200 basis points to 19% on 18 March, a sharper increase than was expected. Agbal’s removal continues the rapid turnover at the TCMB, which has now seen four governors in less than two years.
Kavcioglu is a well-known disciple of “Erdoeconomics”, Erdogan’s unorthodox theory that (higher) interest rates open the way to increasing inflation. As such, Kavcioglu has repeatedly criticized using interest rates to tame inflation as a columnist at the pro-government Yeni Safak newspaper. The same paper that published an article on 19 March fiercely attacking Agbal by accusing him of implementing policies to benefit London-based “hot money speculators” at the population’s expense.
Kavcioglu, who teaches banking at Istanbul’s Marmara University is a former Justice and Development Party (AKP) lawmaker (2015-18). He is also a former deputy CEO of state-owned Halkbank, which faces trial in the US charged with helping Iran evade US sanctions. Kavcioglu worked for Halkbank between 2005 and 2015, which includes the period during which the bank is accused of helping Iran by-pass US sanctions.
Perhaps more sinister is the fact that Kavcioglu is close to Erdogan’s son-in-law Berat Albayrak. While Albayrak remains unseen in public since his resignation as finance minister last November, his allies spread across Turkey’s state institutions, media and business groups have been undermining Agbal’s standing since he was appointed TCMB governor. In this regard, Kavcioglu’s appointment signals that Albayrak and his cabal are back and seeking to pull again the strings on the economic policy-making front.
In this regard, it is also worth noting that there have been significant frictions between new Treasury and Finance Minister Lutfi Elvan and Erdogan’s economic advisers during the preparation of the recently-announced (pointless) economic reform plan. Erdogan’s advisor Professor Erisah Arican – who has been the thesis advisor to both Kavcioglu and Albayrak – reportedly made significant changes to the original draft.
When Agbal was appointed as TCMB governor on 7 November, we wrote: “Looking ahead, the change of the TCMB governor is likely to be meaningless. The bottom line is that the problem is not with the individual who leads the TCMB but essentially with President Erdogan, his sycophantic ministers and advisers and the overall institutional set-up in the country.” As the turnover at the top of the TCMB continues, the underlaying issues remain the same: Erdogan and the fact that there are no institutions left in the country with any sort of independence and authority.
Looking ahead, a cabinet reshuffle is expected to be announced before or after the AKP’s seventh congress on 24 March. Meanwhile, it will be interesting to monitor the reaction of the locals to the latest news. While foreign investors have poured roughly USD 4.5bn net into Turkey since Agbal’s appointment, the locals never bought into the “return to orthodoxy” mantra and did not switch their FX savings to Turkish Lira.