Turkey at economic and political crossroads following Albayrak's resignation

The news that Berat Albayrak, son-in-law of Turkish President Recep Tayyip Erdogan, had resigned from his position as finance minister, sent ripples of joy through political and financial circles in Turkey.

Combined with the appointment of Naci Agbal as governor of the central bank, economic policy appears to be heading in a new direction.

The country's economy has been in crisis for two years now, a situation only exacerbated by the Covid-19 pandemic, and there had been fears that Erdogan was increasingly surrounding himself with yes-men rather than the technocrats that investors and mainstream economists had praised in the first decade of the century.

However, in a speech on Wednesday, just three days after Albayrak's shock Sunday evening resignation, Erdogan appeared to strike a restrained tone, markedly different from his previous public denunciations of the "interest rates lobby" and accusations of foreign powers attempting to sink Turkey's finances.

The president instead said that he would be launching a new economic growth strategy based on low inflation, stability and international investment.

“We are building a growth structure which creates qualified employment, which does not cause inflation and a current account deficit,” he said in a speech to Justice and Development Party (AKP) parliamentarians.

"We will not refrain from implementing the correct recipe, even if it's bitter."

He reiterated this point on Friday, stating that a country "without a strong economy cannot protect its gains in other fields," and saying that Turkey would be "starting a new era of reform in economy and law".

The lira rallied following the speech, which has led some to speculate that the influence of the Pelican group, a bullish and conspiratorial faction within the ruling AKP largely led by Albayrak, could be on the wane.

'Now that he's gone, I don't know how Erdogan will replace him'

- Berk Esen, Sabanci University

Albayrak had never been an inspiring figure for investors, and was known for his sweaty announcements at times of crisis. It appears many within the AKP were getting frustrated with him.

But he was also heavily plugged into networks which have helped bolster Erdogan's government for many years, including the media. His resignation could have dramatic repercussions beyond just his role as finance minister.

"He served a very important role within the administration," Berk Esen, assistant professor of political science at Sabanci University, told Middle East Eye. "Basically, Albayrak was an enabler of this regime - he was in charge of the economy, he was in charge of resource distribution process, he was in charge of partisan appointments across the board.

"He and his brother were in charge of the pro-government media, at least a big chunk of it. Now that he's gone, I don't know how Erdogan will replace him.”

Erdogan's inner circle

In April 2016, a document appeared on a Wordpress site titled the "Pelican Brief," named after the 1993 American thriller, which listed 27 sources of disagreement between Erdogan and then-prime minister Ahmet Davutoglu.

The list, which purportedly came from AKP supporters, is regarded as having played a crucial role in the removal of Davutoglu from his position less than a month later .

In May 2020, Davutoglu, who now leads his own breakaway Future Party, said that the group behind the list had been responsible for a "coup" against him in the party.

"The coup that was done against me in the party was carried out by Pelican. I saw that there were acts that were carried out upon orders behind it. Mr President visited them in their residence," he told Turkish newspaper Duvar.

In the same interview, he said that the group had now descended into infighting and that there were "struggles between ministers" going on.

The influence of the Pelican group has been such that some have branded it a state-within-a-state, with influence over the media, the judiciary and political appointments.

However, since 2019, the AKP has faced a series of crises. Apart from the economic crisis, which has seen the value of the lira collapse and steep rises in inflation and unemployment, the party managed to lose the April mayoral elections in Turkey's two biggest cities to the opposition Republican People's Party (CHP).

In the wake of the defeat, some were quick to point the finger at the Pelican group for the defeat of the AKP's candidates, including Davutoglu's replacement Binali Yildirim.

"The primary effector and cause of the resulting picture is the insidious Pelican organisation that poisoned the party," AKP MP Aydin Unsal, a former adviser to Erdogan, tweeted at the time.

"Binali worked hard and ran a good campaign, he didn't deserve this result. History will remember the treachery and sabotage he suffered."

The last straw

The loss of Albayrak appears to have been prompted by a realisation from Erdogan that the scale of Turkey's economic crisis was becoming unmanageable.

In particular, the decision to start using up huge quantities of foreign currency reserves to avoid raising interest rates (long considered a red line by Erdogan's inner circle) appears to been a tipping point.

"I understand that Erdogan was thinking to limit Berat Albayrak's role on economy gradually over time after he was informed about the details of the central bank reserves a week ago. Apparently Berat Albayrak surprised his father-in-law with this sudden move," said Abdullah Aydogan, a senior research specialist at Princeton University.

Turkey's finance minister resigns after Erdogan replaces central bank governor

Lire

He said there had been pressure mounting from all sides on Albayrak for some time. The replacement of central bank head Murat Uysal with former finance minister Naci Agbal, described by financial analysts as a "market-friendly technocrat," appeared to be the final straw.

Nevertheless, Albayrak's resignation announcement, supposedly on "health grounds," appears to have come as a shock to Erdogan, who did not respond to it for more than a day.

"Albayrak was resisting all these pressures due to Erdogan's confidence in him. When Albayrak saw that Erdogan's confidence in him was damaged, he did not find any solution except resignation," said Aydogan.

His replacement, Lutfi Elvan, was described by political analyst Murat Yetkin as a "critic" of Albayrak. Yetkin also said Elvan was the only minister to stand by Davutoglu (whom he served under) when he was pushed out as prime minister by the Pelican group, which later also saw Elvan removed.

Analysts have seen the new appointments, combined with Erdogan's change in rhetoric, as at least a signal that the president is trying to stabilise Turkey before he has to contend with the political fallout.

"It's really too early to say whether the Albayrak resignation will create a sea change in the way Erdogan runs the government," said Michael Sercan Daventry, a journalist and commentator who runs the JamesInTurkey website.

"I think he'd like us to think that way, because we've seen all sorts of developments in the past week that external observers would consider positive."

Back to normal?

Speculation has already begun about the wider consequences of Albayrak's removal and what it means for the influence of the Pelican group.

The announcement on Friday by the Council of Judges and Prosecutors that they were seeking a review of records relating to the arrest and remand of philanthropist Osman Kavala, who has been held for three years on charges of seeking to overthrow the government, has been seized upon by some as another indicator that group's influence has been reduced.

The Pelican group have been repeatedly blamed for pushing Kavala's continued detention in the judiciary, despite rulings for his release from both the European Court of Human Rights and the Turkish Constitutional Court.

Justice Minister Abdulhamit Gul, also seen as a Pelican opponent, commented on Thursday that detention during a trial should be an "exception".

'I simply don't believe the rumours that the presidency had 'no idea' of the extent to which Central Bank reserves had been depleted to defend the lira'

- Michael Sercan Daventry, journalist and commentator

The importance of Albayrak's removal, however, should not be overstated, said Daventry.

"I simply don't believe the rumours that the presidency had 'no idea' of the extent to which Central Bank reserves had been depleted to defend the lira," he said. 

"Nor was Albayrak the single obstacle, as finance minister, preventing a judicial review into the Osman Kavala case. It feels like an attempt to blame the old guard, and we've been here before."

Esen said that the problems facing Turkey were fundamentally structural and ultimately the responsibility lay with Erdogan and the system that he built over the past two decades.

"There is vast corruption, partisan distribution of resources at the top, the government has been engaged in quite a high level of wasteful spending, particularly on grand infrastructure projects... a small number of construction companies have earned a vast amount of profits at the expense of Turkish voters," he said.

"This is a systemic crisis - it's not a matter of individuals, it's not a matter of cabinet ministers, at this point it's a crisis of government."